The ultimate guide to managing money in retirement
Money can be the route of so much stress in life and there is never a more important time to manage your money than in retirement. From pensions and savings to investments and the various outgoings of everyday life, it can be a lot to keep on top of. But what’s the best way to manage money in retirement?
In this guide, we offer a collection of helpful tips to put into practice. We also highlight some key stats regarding finances in retirement, helping to paint a picture of the money situation that so many of us face. Whether you are on the brink of retirement, are saving for something like a stair lift or are well into your pension, read on for some helpful advice for managing your money.
Stats about retirement finances
Sources: UK Gov, Occam Investing
To help provide a sense of the financial situation that people face in retirement, we have collected a handful of insightful stats. From average weekly income for pensioners to benefits received, take a look at the graphic above or read on to learn more about retirement finances.
- The average weekly income for pensioner couples (AHC*) in 2021 was £511
- The average weekly income for single pensioners (AHC) in 2021 was £246
- The average weekly income for all pensioners (AHC) in 2021 was £361
- The average weekly income for under 75s (AHC) in 2021 was £393
- The average weekly income for over 75s (AHC) in 2021 was £328
- 20% of pensioners received income-related benefits in 2021
- The average pension pot for those aged 65-74 is £190,000
- The average pension pot for those aged 75 plus is £90,300
*After housing costs
How to manage money in retirement?
Have a plan
As with most things in life, having a plan in place is an important starting point. Without a plan for managing your money in retirement all the various incomings and outgoings are hard to keep track of and the chances of falling into financial difficulty increase.
Think about your income and outgoings for each month, have a plan in place for savings and investments, and put all the information in one place. If you know exactly what your income is for each month and how much you will need to spend on things like bills, food, travel, rent/mortgage payments, medical expenses and any other outgoings, you will be able to plan your finances and lifestyle accordingly.
Consider planning and organisation as your overarching strategy and the following tips in this guide will then help you to cultivate that plan and put together an effective approach to managing your money.
Ask yourself key questions
When looking at how you will best manage your money in retirement, it will be helpful to ask yourself some key questions as this will help you make decisions and understand your financial situation. Try posing the following questions to yourself as a starting point:
When will I need to start drawing from my pension?
Many people today do not step straight from full-time work into permanent retirement. Lots choose a phased approach to retirement, cutting down their hours at work while they make the transition. If this is something you are considering, you will want to ask yourself at what point will you need to start drawing from your pension, to help you create your retirement financial plan.
What do I want to do once I retire?
What are your plans for retirement? Do you have activities you want to take up, goals to pursue, or travelling you want to do? By asking yourself these questions, you can get a good sense of how much money you will need to fund your retirement years and how you should go about budgeting your money.
How much income will I need?
Once you know what you want to do in retirement and when you will be drawing your pension, you will then have a better understanding of how much income you will need throughout your retirement years to fund your desired lifestyle.
How long will my money need to last?
With life expectancy rising and depending on what age you are retiring; part of your planning should involve figuring out how long your money will need to last. Of course, you can’t be exact, but having a rough idea in mind will help you budget for the future and plan accordingly.
Identify your income
Knowing where your income is coming from in retirement is a crucial part of managing your finances and staying on top of things. You will most likely have more than one income source, between a state pension, private pensions, and perhaps even investments and benefits. So, identify where your income is coming from in retirement as well as how much you get from each income source and in total. Then you will be able to manage things effectively and have a concrete understanding of how much money you have to play with on a month-to-month basis.
Take inflation into account
Something to take into consideration when attempting to manage your finances is the impact that inflation will have. What something costs today will likely cost more in the future and your income might not match the rate of inflation while still changing itself. As a result, your outgoings will likely change from year to year and your income will also vary somewhat, so you will need to be somewhat flexible with your budgeting. This is normal but certainly something to keep in mind.
Ensure you get the benefits you are entitled to
We have spoken to Nick Daws from the over 50s personal finance blog, Pounds and Sense, who shared with us his top tip for managing money in retirement. His recommendation is on the topic of benefits and ensuring you are getting what you are entitled to:
“Retirees must survive on a limited income that isn't likely to increase very much. So, it's essential to check you are getting all the benefits you're entitled to. These may include pension credit, council tax reduction and attendance allowance. You can check your entitlement using the Age UK benefits calculator at https://benefitscheck.ageuk.org.uk/Home/Start/.”
Naomi, from the money blog, Skint Dad, has spoken to us about her tips and emphasises the importance of benefits, offering a few examples of what’s available: “When you reach State Pension age, there are a number of benefits and discounts that you can claim to get extra money into your budget. The government has set aside billions of pounds in support, so it should be claimed to stop you from missing out.
“As just one example, Pension Credit is available for thousands of people who aren’t currently claiming. However, you might also be able to get help with heating your home and free eye tests, prescriptions and dental care. If you are unsure where to check what benefits you’re entitled to, get in touch with your local Citizens Advice or Age UK for support.”
Don’t pay more tax than you need to
Taxes are a part of life, and we all have to pay them but there is no need to pay more tax than you need to. There are steps you can take in retirement to reduce your tax bill, such as being entitled to take 25% of your pension fund tax-free. So, do some research yourself online or speak to a financial advisor, make sure that your tax bill is as light as it can and should be.
RESOURCE: Ways to reduce your tax bill in retirement
Think about your commitments
While you may be retired, that doesn’t mean that your responsibilities and commitments have come to an end. When looking at how to organise and plan your finances, think about what commitments you have and what demands they make on your bank account. For example, you might want to help support your adult children with a house of their own or contribute to a wedding. Maybe you would like to help a grandchild financially with university fees, for example. With good planning and taking thoughts like these into consideration, the support you would like to provide can be taken into account without becoming a burden or contributing to financial difficulty.
Budget, record and seek advice
Once you have identified your outgoings and income, it will be very helpful to put together a monthly budget. By knowing how much you can spend each month and keeping a track of what you are spending, perhaps in a secure spreadsheet, you will avoid spending more money than you have and entering into financial difficulty.
Having a budget requires you to execute self-control over your spending but by being disciplined, the stresses of not having the funds in place month to month to pay bills will be avoided. Further still, your monthly budget will prevent you from needing to dip into funds you will need to support yourself in the years ahead.
Chris, from the money-saving blog Life Upswing, has spoken to us about his tips for managing money in retirement and suggests that people create a budget, keep financial records, and seek expert advice if needed: “I’d say that the most important thing is not to panic! It’s always scary having to manage your financial situation on your own, so try and make sure that you enjoy your time in retirement.
“It won’t be easy but keep an eye on your income by keeping financial records and setting monthly budgets. Always be willing to seek professional advice if you feel overwhelmed by your finances, but always take the time to research any company or financial adviser before you find yourself handing over your hard-earned money. Finally, always try and have fun! Retiring is about enjoying your time, so make sure you do just that.”
Invest wisely
One method that many choose to provide themselves with an additional income in retirement is investing their money. By investing your money wisely, there’s a very good chance you will see a much better return on your investment than you might see from interest on a typical savings account. If you are unsure about investing or don’t want to dip in yourself, it’s certainly recommended to speak to a financial advisor who can manage the process for you. Having another source of income apart from your pension will be a great boost to your finances if you have the capital available.
Tips for managing money in retirement
- Have a plan
- Ask yourself key questions
- Identify your income
- Take inflation into account
- Ensure you get the benefits you are entitled to
- Don’t pay more tax than you need to
- Think about your commitments
- Budget, record and seek advice
- Invest wisely
Retirement can be a wonderful, fulfilling, and beautiful time of life. While money will always be an important factor for most of us, with the right planning and organisation, it can be effectively managed for a more stress-free future.
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This news article is from Companion Stairlifts. Articles that appear on this website are for information purposes only.
