The Retirement Newsletter: How did my budget pan out?

Issue Number: 206 (59) — worrying about money

Photo by Author — retirement is to be enjoyed

Welcome

Welcome to issue 206 (59) — How did my budget pan out?

In this week’s newsletter, I look at my attempts to budget for the first year of my retirement.

So, how did it go?

Budgeting in Retirement

I am not a financial advisor. I am writing about what I have read over the years about money, preparing to retire, and my experiences. This is not financial advice.

We view retirement as a time of freedom — no more alarm clocks, commuting, soul-crushing deadlines, or work politics. Retirement is a time to enjoy hobbies, travel, and family.

However, retirement is also a time of financial stress and worry.

When we start in the big, wide world of work, we have financial stress and worries. We are worried about getting a job and holding on to it. We earn little and tend to spend a lot. We have many unavoidable expenses — mortgages (if we are ‘lucky’ enough to afford one), car payments (if we can afford them), and general living expenses. Plus, we want to have fun.

I found my first twenty years of working financially very stressful. It was tough. But things finally eased as I got better jobs, was promoted, and earned more. I would never describe things as easy and stress-free, but over the last ten years I worked, I wasn’t as stressed about my finances as I had been earlier in my career.

And then you look retirement in the eye, and you get that familiar feeling in the pit of your stomach that you recognise from your youth — financial worries, financial stress. It is this stress and worry that puts many people off retiring.

The Challenges of Budgeting in Retirement

As I approached retirement, I kept running the numbers. I created umpteen spreadsheets, reviewed my bank statement again and again, and looked at my expenses. I looked for what I could trim and what I had to keep. I nearly drove myself mad with worry, going over things. So what did I do? How did I approach the problem? What did I learn from the process? And did it work?

Many retirees go from a predictable income (e.g., monthly salary) to a potentially lower and less consistent income. We rely on a mix of pensions (state and private), savings, and investments. Fluctuations in interest rates, inflation, and unexpected expenses (e.g., home and car repairs, medical expenses if we don’t have health cover) can make financial planning uncertain. Add to this the fact that none of us knows how long we might be retired, what interest rates and inflation might do, and it becomes an absolute nightmare for planning.

I tried to model and plan, but I concluded there were too many uncertainties — it was impossible. In computing terms, it was a hard problem; it was a Travelling Salesman Problem. There were too many variables.

So, I took a simple approach.

First, I accepted a base income. I had a quote from my retirement company, and I knew how much I would be getting each year and how much that was likely to increase. I decided to ignore income from other sources, e.g., investments, and view it as ‘gravy’, that is, I viewed it as a bonus or ‘fun money’, that could be used for doing fun things. In other words, I wasn’t banking on it for day-to-day living.

I then went through my expenses and classified them as follows:

• Have to pay — I have no control — these can’t be avoided. These are expenses over which I have no control, such as local property taxes. If I want to live where I am, I have to pay them and have no say (other than through the ballot box) over how much I pay.

• Have to pay — I have control — these are things where I have control over the level of expense, but I have to pay. For example, rent or a mortgage if I didn’t own the property, heating, lighting, water, transport, house insurance, house maintenance and food. This category tends to be things you need to live. I have some control as I can shop around for the best deal and limit my use of things like electricity. My contingency fund also falls into this category.

After that, everything becomes optional; they are things that I decide to spend money on to have the life and retirement I want, but I have to accept that there are sometimes “Have to pay” costs associated with them. An example of an optional item with related expenses is a car. I don’t have to have a car. But, if I do, there are costs that I have to pay — annual car tax (have to pay — I have no control as it is a fixed fee), annual car safety check (have to pay — no control, fixed cost), insurance (have to pay — I have control as I can look for the best deal), car maintenance (have to pay — I have control) etc.

So, when I looked at things in this way, it became considerably simpler:

Income:

• State Pension

• Private Pension

• Savings/investment income — not factored into budgeting for living expenses

Expenses:

• Have to pay — no control

• Have to pay — I have control

• Optional expenses — my wants — holidays, cars, etc.

(If you have no savings, one expense you might need to add is a contingency fund to cushion against large, unexpected bills.)

The key I have found is to track income and outgoings regularly. For this, I use an app which automatically pulls data from my bank and assigns expenses to the categories I have defined. Doing this allows me to track my expenses easily. I will not tell you the app because several apps can do this ‘trick’, and I believe some banks also offer this functionality in their apps. It’s a question of finding the app that works best for you. Alternatively, you can go old school and use a spreadsheet.

Making your money go further

So, do I have any tips on making our retirement funds go further?

Well, here are some things that are working for me:

• Tracking Everything: Use a spreadsheet, notebook, or budgeting app to monitor expenses. This has helped me spot “leaks,” i.e., things I was paying for but no longer use, such as certain subscriptions.

• Cutting Unused Subscriptions: By tracking everything, I spotted a surprising number of unused subscriptions that I could drop. In some cases, I could keep the benefit of a subscription by shopping around for cheaper alternatives or looking for bundles that combined several subscriptions.

• Using Discounts and Perks: I have found these surprisingly difficult to find, but I keep looking. I try to make the most of discounts on travel and entertainment (age discounts and time of day), and when shopping, I look for deals and loyalty discounts. Our age and not working during the day can be an advantage.

• Planning for Big Expenses: Replacing a boiler or car repairs can catch us out. I built a contingency fund before I retired and still top it up monthly.

• Avoiding Unnecessary Debt: Credit cards or loans can be tempting, but interest payments quickly eat into your budget. I cut up my credit cards when I retired. They were paid off; I hadn’t used them in years, so I destroyed them.

• Get Advice: If in doubt, don’t be afraid to consult a financial advisor, especially one specialising in retirement planning. Many offer free initial consultations, and a good one can help you maximise income and minimise tax.

One thing that many people advocate when retiring is downsizing or relocating. I will downsize at some point, but I doubt I will relocate. Downsizing makes sense as it reduces the expense of running a home and decreases property taxes, but I could never see the point in relocating. You have lived somewhere for most of your life, you know the area, you have friends, and as soon as you retire, you move somewhere with no social network and have to start again. It seems madness to me. Anyway, please let me know your thoughts — did you downsize or relocate?

How did my budget pan out?

I have found that retirement hasn’t meant giving up the good life — it just required a shift in my mindset. With careful planning, realistic budgeting, and a proactive approach to my money, I have found I have no issues (famous last words) and am enjoying my retirement years. My thinking is that it’s not just about making my money last — it’s about making it work for the life I want to live.

Overall, my budgeting for the first year of my retirement has been a success. I’ve done what I want to do, and I’ve even saved and invested some money.

What do you think? How’s your retirement going? Do you have any budgeting tips or advice? Please let me know in the comments.

Please note I am not a financial advisor. I am writing about what I have read over the years about money and retirement. This is not financial advice.

Next week

Having written the above, I think I have already revealed the answer to the question I will be asking next week in issue 207 (60): Should I get a part-time job?

Thanks

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Until next time,

Nick

PS: If you would like to contribute a story, advice, or anything else to the newsletter, please get in touch.

Please note: I am not a financial advisor. When I write about money and financial matters, I base my opinions on what I have read over the years about money and retirement preparation. IT IS NOT FINANCIAL ADVICE.