Retirement – can you afford it?
Retirement is something that many people look forward to whilst others dread it. That can be the difference between a planned or enforced retirement. This is the first post in a series of three outlining aspects of retirement. and we start with finances.
As the Meerkats on the advert would say it’s ‘simples’.
- Work out your net income. That is likely to be your pension.
- Make a list of all your essential bills and add up the total- utilities, mortgage etc.
- Make a list of all other spending you would like to have and total them.
- You add up the totals for 2 & 3 and subtract them from 1
- If 1 – 2 & 3 is positive you can increase some of the items in 3. If 1 – 2 & 3 is negative you need to bring down some items in 3
This will give you a picture of what you can afford in retirement.
Having some idea of your financial situation when you are retired is something that really should be done a few years before you give up paid employment. It is no good waiting until the day they give you your gold watch to realize that you are not going to be able to meet you bills. It takes planning.
My husband retired very early at 47 and he has maintained very detailed accounts since then. This meant when I was considering retiring at 56, he was able to work out how much effect replacing my salary with my pension would make to us. I really didn’t want my life to change too dramatically so for instance if I wanted to pop out for coffee I didn’t want to have to check the bank balance. That said obviously we had to be careful but with planning it has worked.
This is an example of our basic balance sheet. Click it to enlarge
BILLS / DONATIONS. These are payments that we have commitments for; direct debits mostly. You will see however that it also includes a payment for ‘Hair’. This is to make sure we look OK in our retirement! It also includes the car insurance as we do a lot of travelling.
CASH / SPENDING which include groceries and everyday spending.
JOINT A/C This includes things you may want to save up for like Christmas, birthdays, eating out and holidays. This is the area that is changed if the bills go up or conversely if the pensions increase!
SAVINGS Finally, if there is anything left you can put it towards savings / investments.
This is our way of budgeting and is presented as an example. It is done on an Excel spreadsheet so as your bills change or your income goes up, you can make the necessary changes to keep your outgoings balanced to your income.
This type of exercise can be very worthwhile if you are thinking of retiring ‘before your time’. Often the finances are better than you think if you work out exactly what you need and can mange with.
How near to retirement are you? Have you thought about how you will manage financially? If you have retired, did you have a financial plan? Let us know below!