2.1 Your budget

Following the guidance provided in the previous section you can now start to forecast your spending in retirement.

Figure 2 Drilling down into those financial details.

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The figure is a photo showing a woman in a large workshop looking intently at the screen of her laptop.

Figure 2 Drilling down into those financial details.

To help you estimate your spending, there’s a detailed budget grid below that you can complete either online or by downloading and saving. This has a column for your current annual spending and one for your forecasted spending in retirement. There’s an extra column for your monthly and weekly spending if you’re using this method to scale up to your current annual spending.

The budget grid separates spending that is ‘essential’ (e.g. food) and that which is ‘non-essential’ (e.g. leisure activities). This distinction can sometimes be difficult to make – for example, for many people gym membership is essential to help maintain good physical and mental health in later life. Making the distinction can help if you need to make savings as you usually have more options to cut costs on non-essential spending.

Your spending pattern will change in retirement

Some spending items are likely to change in retirement – perhaps your mortgage will be paid off by the time you retire? Some travel costs may go down if you have an expensive commute. If in doubt, overestimate your spending needs – it’s always better to find you are spending less than expected rather than more.

Don’t forget to include the cost of repaying any debts – for example your mortgage, car finance agreements and bank loans. Many people use the tax-free lump sum from their pension pot to clear these debts as they go into retirement.

As you complete the grid you might want to use the exercise to see if you can reduce some of your spending costs – for example by switching utility suppliers or cancelling subscriptions that you don’t really use. Regularly reviewing spending is a good habit to get in to.

Make a start now and then you can return to your budget later to refine and finalise it. Once completed, you’ll have the target level for the disposable (after-tax) retirement income you’ll need.

Next, you look at what income you can expect in retirement. You start by looking at how much state pension you can expect to receive.