You’ve finally reached your long-awaited retirement. You’ve saved enough to live a comfortable retirement lifestyle, and all is champagne and roses, BUT… have you considered all the other retirement expenses apart from your monthly income? What expenses, you may ask? And how will you adjust to your new life without work or purpose? This will be the one time in your life when you will probably have the most money, unless you are fortunate enough to have a trust fund or a large inheritance.
How far will your retirement savings go? The obvious expense is your monthly income. For many, a percentage of retirement capital will be used annually to cover expenses without eating into capital (rule of 4). This includes increased yearly expenses to compensate for inflation. In contrast, others may use their total capital to fund retirement income. Because people are living longer, it is vital that retirement savings will cover the extra retirement term.
But it’s not as easy as that. There are many other expenses needed at retirement apart from the monthly income, such as once-off expenses. Do you have enough retirement savings? Will this money come from your retirement savings, and if so, will it reduce your monthly income?
Other expenses to consider including:
Many might still have a small amount left on a mortgage and wish to pay it off to lower monthly expenditures and free up disposable income. If this comes from your pension pot, will it reduce your monthly income?
With retirement comes significant expenses, such as a kitchen renovation or extension, a major repair like a roof replacement, a new vehicle, or even funding a small business.
That once-in-a-lifetime trip or cruise you’ve always wanted to take but were too busy or didn’t have enough money is now possible.
Unfortunately, with age comes increased medical care. Can you afford the possible extra expenses like building wheelchair access to your home or employing a full-time care worker? Expenses could include:
Life doesn’t stop happening just because you are retired. There will still be unforeseen expenses that arise:
You might have taxes to pay when withdrawing retirement money from savings and investment accounts. Remember to include these deductions in your retirement income budget. Usually, only a portion of retirement savings are tax-free.
Now that the money aspect of retirement is covered, we look at the part of retirement they never warn you about. Retirement is a significant life-altering event, and many will not be psychologically prepared for it.
Some retirees will need to downgrade their lifestyle in retirement as they have less monthly income. Not being able to eat out or travel as much can be frustrating and even lead to depression. Adapting is essential. Find new, cheaper ways to get your travel fix, like travelling locally or having friends over for dinner instead of going out.
Many retirees lose their purpose in life. Without work, they find themselves with no purpose or direction and often fall into depression. Mentally preparing oneself for a new lifestyle before retirement is essential, as there are several stages of retirement that pensioners need to be aware of.
This is probably the biggest challenge of all. Many will be in vacation mode and enjoy relaxing and doing very little, but after several months or a year, the honeymoon will be over, and they will find they need purpose.
Finding a new purpose or things to do after retirement could entail focusing on family and grandkids, like driving them around to activities and babysitting, taking up hobbies like gardening, woodwork or sports, joining social groups like book clubs, gardening clubs or church social clubs, or even taking on part-time work like volunteering at a local community hall or charity shop.
Some might feel they still have much to contribute to society and return to work part-time or start a small business.
Retirement can be financially challenging at the best of times. Hidden costs are real and might come as a shock. It is essential to consult with a financial adviser before retirement to budget for ALL costs and not just a monthly income.
Making the transition from professional to retiree can be a stressful time. Be aware of the possible emotional changes and how to find solutions to adapt.
Please note, the above is for educational purposes only and does not constitute advice. You should always contact your adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.
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