5.1.1 How much do you need?
In Week 3 [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] , you looked at the process of forecasting the size of the pension you need in retirement, using the Age UK pension planning tool. Even if you accessed the tool in Week 3, you might want to try it again here as the starting point for your pension plan.
In doing so, you need to take into account how your spending needs in retirement may vary from those during your working life. These differences could include:
- lower day-to-day travelling costs as you will not be commuting to work
- savings on work-related costs such as National Insurance Contributions (NICs) and pension contributions (NICs are not deducted from pension income)
- higher holiday costs given the greater spare time you will have
- higher utility bills given the longer time you will be spending at home
- possibly, later in retirement, more spending on health-related items
- savings on a range of items due to the ability to take advantage of ‘off-peak’ pricing
- possibly lower housing costs since, by retirement, most homeowners would have completed paying off their mortgage.
To help your analysis of the pension income you need, watch the video where Martin and his Open University colleague, Jonquil Lowe, talk about how to start pension planning.
The video was filmed in 2015. However, the issues explored remain relevant to retirement planning.
Transcript
Once you have completed this section, you should be building up a picture of the income needed in retirement. The next section is to determine how much of this you anticipate to receive through your state pension entitlement.