The importance of a budget when approaching retirement

11th August 2020

Budgeting is the foundation of sound financial planning, with the ability to spend less than you earn each month an indicator of long-term financial success.

In the words of the Micawber principle "Annual income 20 pounds, annual expenditure 19 [pounds] 19 [shillings] and six [pence], result happiness. Annual income 20 pounds, annual expenditure 20 pounds ought and six, result misery.'

New research has found that most people in their 50s, 60s and 70s don't have a formal budget. Having clarity regarding your expenditure requirements is one of the most crucial elements to building a robust financial plan.

Insurer SunLife found that only 31% of over 50s budget formally.  The research found that 28% of over 50s said they don't record their income and expenditure, but they do claim to have a clear idea of their finances with 18% saying they don't budget at all.

According to the research, over 50s households have an average income of £2,175 a month and spend an average of £1,833 each month on essential expenditure.

While, on average, over 50s households have £342 a month in additional income, 39% reported that they don't have any money left over at the end of each month.

Simon Stanney, Non-Life Business Director at SunLife, said:

"Our study shows that the average over 50s household should have £342 leftover each month after all their regular – essential and non-essential – expenses are accounted for, but 39% say they have no play money left.

"It could be that for many, just taking more control of their finances could put them in a much better financial position and create a little extra 'fun money'.

The results of this research show the value of having a budget in place before retirement as if you were to continue into retirement with an annual income shortfall that this could lead to you running out of capital altogether. 

This could then lead to individuals not achieving the objectives and goals they had set out when they retire whether it be to pass on money to their loved ones or travel the world to give a few examples.

With the help of a financial planner, you can work together to not only ascertain your budget but also to identify what your objectives and goals are for retirement. 

Once you have been able to identify these areas, you can then start to understand what it is you need to do to fund or adjust this budget both prior to and in retirement and how this will help you achieve the objectives and goals you have identified.

Once you have this financial plan in place it and continue to review it regularly with a financial planner, this will provide you with reassurance and the ability to enjoy the here and now without worrying about the future.

Duncan Arthur  APFS MCSI Cert (DM)

Director of Financial Planning

Blackadders Wealth Management