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Can I afford to retire?

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Can I afford to retire? How can we budget for this? How can we live off one salary in retirement? How much do you need to retire?
 
I’m sure these are questions that once folks get over 50 they start to think about. I certainly did. My main concern was how would we manage without my salary?
 
In this article, I consider the following:
 
  • Can I afford to retire?
  • Will I be able to enjoy life with my retirement income?
  • Will my retirement budget restrict me?
  • How to plan and budget for expenditure and tackle retirement finances

An eye on our finances 

One question everyone asks at some point or another is how much money they will need to retire. The answer’s different for everyone, but before we made the decision as to whether I could afford to retire, we looked at our finances in close detail.
 
We had always had a detailed breakdown of all our monthly expenses such as clothes, holidays, weekly food shopping, car expenses etc., and each month, a certain percentage of our income would be allocated to each area.
 
If it transpired that we did not have enough to buy a new wardrobe, then we waited until we did have enough. We were pretty sensible with money like that.
 
In terms of being organised about our retirement income, my husband was in his mid 40s when he started the plan in earnest. I think any earlier would have been difficult to contemplate! When it came round to my turn, we already had a few things in place.
 

Will my pension finance the lifestyle I want?

When the time came, and with what we’d learned in mind, we looked carefully at the difference between my pension and my salary and what difference that would make when it came time to retire.
 
We devised our own pension calculator and played around with our monthly expenses figures to match them up with the revised income to decide whether retirement was feasible.
 
I was adamant that a lack of money should not change our lives too dramatically once we were reliant on pensions. If we were not going to have the money to pop out for coffee and cake during the week, I would not retire!
Planning and budgeting for retirement is a sensible step

Your retirement income: Lump sums

When talking to friends about our approach to retirement budgeting I did often get comments like ‘we can see how this will provide day to day cash flow but how do you afford to do the exciting fun things everyone dreams of doing in retirement? Do you have a wedge of cash that will pay for that?’
 
Often when you retire, there will be a lump sum of up to a quarter of the value of your savings that you can take tax free, as well as monthly payments as part of your retirement income.
 
As both myself and my husband are now retired, we used one lump sum from our retirement income to pay off the mortgage and the other is used for savings for ‘big adventures’.
 
We are to travelling to see my brother in New Zealand in February, stopping off at Singapore, Sydney and San Francisco. I can’t wait!
 
This has been made possible by saving over the years, but also the fact that our monthly budget includes money to put away for holidays.
 
 

Managing your retirement finances

I believe that the fewer outgoings you have in retirement, the better, as you then know that the money in your account is there to be spent on living your retirement.
 
Apart from removing the hassle of direct debits and other payments, at this point in your life you want to know that the majority of your money is there for you to spend.
 
Retirement should be regarded as the next episode of your life, not an end, and it should not be dictated or dominated by finance, anymore than your years prior to leaving paid employment were.
We are pretty committed to budgeting in retirement and always ensure we stay on top of this.
 
If our monthly pensions are increased by a cost of living allowance, then each area on the expenses sheet is increased by that percentage. We are pretty strict with this and having a systematic approach to our finances makes me feel better, less nervous and more at ease about us being able to afford the life we want.
 
Our shopping habits have also become more focused in retirement. I was determined to get out some of those cookery books that were gathering dust and it was surprising how much we could save.
 
The extra time now available also allows us to look around and compare prices to ensure we get the best deals out there. We also wasted less because rather than having to do all the shopping once a week, when it came to fresh produce we could buy every couple of days.
 
Retirement should be regarded as the next episode of your life, not an end, and it should not be dictated or dominated by finance, anymore than your years prior to leaving paid employment were.
 
You obviously have to be sensible but with careful budgeting in retirement and planning of your retirement income you can make sure that you concentrate on new experiences and let the pennies take care of themselves! If that can be achieved I’d say yes - you can afford to retire!
 
Would you take out a lump sum? Would you use it to pay off your mortgage, to fund adventures or would you save it for your kids? We’d love to hear your take on this.
 
This article has been commissioned by retiresavvy and any opinions voiced are the author's own.

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