What your budget might look like in retirement
Last updated on 19 May 2015
Your main source of income in retirement is likely to switch from a salary to any pensions you are entitled to (such as company, private or state pensions) and income from any savings and investments you have.
We use 'retirement' to refer to the time when you start your main pensions rather than necessarily stopping work completely. An increasing number of people now do some form of paid work in retirement. This can be working part-time or on an ad hoc basis to help boost their income.
Your retirement income might also be boosted by certain age-related state benefits such as Pension Credit if your income is low, housing benefit if you rent your home and the Winter Fuel Payment. And some areas of your spending might go down a bit once you qualify for a free bus pass, free NHS prescriptions and sight tests from age 60 in England (they are free at any age in the rest of the UK), and a free TV licence from age 75.
Your household bills are likely to increase if you spend more time at home. For example, your electricity and gas bills might go up if you have to keep your house warmer for longer periods. To make sure you're getting the best deal on your fuel bills see our guide on cutting energy bills.
While your bills might go up, you might be able to make savings elsewhere. Not being at work may mean saving on expensive coffees, lunches out and work clothes.
More time on your hands might also mean you can do more around the home. When you were working you might have paid for help with cleaning, gardening, decorating and general maintenance. Once you are retired you might want to do more of these things yourself.
One of the biggest changes to your budget compared with now is that you may have paid off any mortgage you have. If you'll still have a mortgage, you could consider withdrawing some of your pension savings as a lump sum to pay off the remaining amount.
It's a good idea to start retirement free of all debts if you can - including personal loans, credit cards and so on. Since April 2015, you have new freedoms to draw out savings from many types of pension scheme as lump sums rather than income - see our guide on your retirement options for more details. Using some pension savings to pay off debts could improve your budget more than if you used the savings to provide income.
If you've been saving specifically for retirement you might now reduce or stop these contributions and reap the rewards.
You may no longer need certain insurance cover such as income protection. But you're still likely to need some insurance such as for your home and car (if you have one). You might also want to replace any insurance you received as part of a benefits package at work such as life cover and health insurance.
Some insurance cover may be cheaper as you get older such as home insurance. But others become more expensive such as car, life and private medical cover. And you may even have problems getting certain types of cover. For example, some of the most competitive travel insurance policies have an upper age limit of 65.
Some insurers specialise in insurance for older people but you need to compare their prices with other insurers as you might find a better deal elsewhere.
Later in retirement, care costs may become significant. At present, the main options for coping with these are out of income, savings or using the wealth locked up in your home (for example, by taking out an equity release scheme).
Travel and motoring
Travel costs might go down if you no longer have to commute to work. But if you had a company car you may now want to replace this and you might have to arrange and pay for your own car insurance.
You might also find you use a car more often now that you have more free time. But if you use public transport you will be able to use your free bus pass.
One of the biggest joys of retirement is having more time to pursue your hobbies and interests. Depending on what you enjoy doing you may find your spending on leisure pursuits increases. But many hobbies are free and there are often special deals for older people to help keep costs down.