There are many factors to consider before making a decision on your retirement, but the three things I will focus on are how long you have to wait to be able to claim benefits, how much income you need each month, and what kind of health insurance you currently have. Pensions are always the main contributing factor to an easy retirement, Pension Times is a great starting point.
Cost of living
You can live as cheaply as you want, but if you’re living off interest income, you won’t get much. The cost of living in the UK is among the highest in the world, so living on interest income means living very frugally.
According to the Guardian, a comfortably retired 65-year-old couple living in London, aged 65-74, will spend an average of £42,000 a year on food, utilities, travel, clothing, furnishings, holidays, entertainment, and eating out. This comes out to £1,000 a month.
A retired 66-year-old couple living in London and aged 65-74 will spend an average of £61,000 a year on food, utilities, travel, clothing, furnishings, holidays, entertainment, and eating out. This comes out to £1,700 a month.
Determine what kind of lifestyle you want in retirement
At any age, the lifestyle you want in retirement is a projection of three factors: your savings rate, inflation, and life expectancy. The savings rate is how much money you have saved as a percentage of your pre-retirement income. When you retire, your payment will be less than before because you are no longer paying for work.
But you will have other expenses. You are going to need a place to live, and you will probably want to travel more. If you want a lifestyle that involves aeroplanes, cruises, and ski lessons, you have to budget for them.
You also need money for health care. If you get sick, you will probably have to pay for it.
Create a mock retirement budget
There are two basic kinds of retirement budgets, neither particularly complicated. The first is a periodic budget, in which you estimate how much you will need each year and divide that by twelve. You spend each month the amount you estimate you will need, and at the end of the year, you reassess your needs.
The second kind of budget is an investment budget. You estimate how much you will need and then spend that amount every year. The periodic budget is helpful if you are already retired because you know what you will be paying. But most people retire in their fifties and have no idea how much they will be spending until a few years after they retire.
The investment budget is more complicated because it requires you to think about what you will do with the money. But it is also more flexible. You don’t have to spend the whole amount right away, and you can stretch it out over decades, investing it, for example, in stocks, bonds, or other securities.
The periodic budget gives you less freedom because you can’t invest the money. The investment budget gives you more freedom but requires more thought and planning.
