Why it’s so important to work with a planner to model and plan your retirement income

An older couple walking with a bike

When it comes to retirement, you might assume that the first few years after you give up work will be the most expensive. After all, when you’re finally free to do as you please, it’s understandable that you’ll want to spend your hard-earned wealth on things you enjoy.

Surprisingly though, new research by the Institute for Fiscal Studies (IFS) has found that this isn’t actually the case. In fact, the average spending of retirees increases in their 60s and 70s, instead of slowing down as you might expect.

If you want to enjoy the retirement you’ve always dreamed of, it’s important to understand how to draw your income sustainably. Read on to find out why this is so essential and why working with a financial planner can help.

Research shows that a comfortable retirement would cost £26,000 annually

Retirement means different things to different people. Some may prefer to spend long afternoons in the garden with their loved ones while others may want to take long holidays and see the world. But however you plan to spend yours, it’s important to be aware of the costs.

According to research by Which?, a study of 7,000 retirees found that the average household will need an annual income of around £26,000 to enjoy a comfortable lifestyle. This amount would cover the essentials, along with regular holidays, meals out, and other types of leisure.

When it comes to thinking about income in retirement, you might think that your spending might be highest at the start. There’s an obvious logic behind this, as you’re more able to enjoy yourself while you’re younger and healthier.

As such, you might be tempted to believe that this figure of £26,000 only applies to the early years of your retirement and that your spending will drop later. While this thinking is understandable, not planning ahead properly could increase your risk of running out of money.

Research shows that the spending of many retirees actually increases over time

Recent research by the IFS shows that contrary to popular belief, retirees’ spending typically increases through their 60s and 70s, only tapering off when they reach the age of 80.

According to the study, one of the main reasons for this is that, for many people, their incomes actually increase with age, as they receive State Pension and possibly survivor’s benefits. This means that they’re in a better position than they might expect to enjoy their retirement to the fullest.

The report also found that:

  • While spending on food and motoring fell with age, the amount spent on holidays rose between the ages of 67 and 75
  • The desire of retirees to spend does not decrease with age
  • The amount of money spent on household services (such as domestic cleaning) and bills increased from the mid-70s and onwards.

As these findings show, it’s important not to simply rely on assumptions about how you’ll spend your wealth when you retire. If you do, you could run the risk of running out of money and being unable to make the most of your retirement.

This prospect is a concerning one and so if you want to avoid it, seeking professional advice can be invaluable.

Working with a planner can help you to avoid the risk of running out of money

If you want to make the most of your retirement, it can be useful to understand how much wealth you have and how your spending patterns may shift over time. Of course, nobody can predict the future without the help of a crystal ball, but cashflow modelling can provide invaluable insight.

Essentially, this involves working with your planner to build an accurate picture of how your financial situation might change once you’ve retired. By understanding your long-term goals, how much income you’d like to take, and how much your wealth may grow, you can plan ahead effectively.

For a start, cashflow modelling can help you to avoid the risk of running out of money in retirement and the stress that could cause. By building an accurate forecast of your finances, you can ensure that you don’t overspend early on.

In the same vein, it can also help you to enjoy your retirement to the fullest. As the study notes, since the income of many retirees rises over time, if you’re being too frugal with your wealth then you may miss out on important experiences.

On top of this, cashflow modelling can also give you greater peace of mind if you’re worried about how inflation will affect your income in retirement. According to data from the Office for National Statistics (ONS), the Consumer Price Index (CPI) rose to 9% in the year to April 2022.

Prolonged periods of inflation can pose an issue for retirees as while prices could rise, the income you have to live on may not. Factoring this in to your cashflow forecasting can reassure you that your finances are robust enough to provide you with a comfortable retirement.

Working with a planner can help you to give you a greater sense of confidence that you’ll have enough wealth to enjoy the retirement you want when the time comes.

Get in touch

If you want to know more about how cashflow modelling can help you to enjoy a comfortable and sustainable retirement, we can help. Please email or call 01454 416653 to find out how.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

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