Budgeting in retirement

enthusiasticsaver

There is an interesting discussion going on over on banking and budgeting and I thought I would ask how those who are retired budget or if indeed they do?

We are lucky in that we have good DB pensions, a full emergency fund and investments to back up our pensions. Our monthly DB pensions cover our essential outgoings and as we no longer save for retirement all our savings are allocated to a budget category or savings envelope. 50% of our pensions is used monthly and divided among 5 budget categories, food, diesel/travel, entertainment/eating out and direct debits/standing orders and monthly personal spends for DH and myself. The first four budgets are kept in the current account and the personal spends go into separate personal accounts. We also have 5 virtual envelopes and the other 50% of our income is divided up amongst 4 of these. The fifth is emergency savings so that is already full but the other four are cars, house, holidays and gifts. These do not reset monthly but rollover so there is always money there to pay for a holiday, insurance premium, car repair etc etc. I use excel and clear checkbook to keep a record of spending.

Is budgeting a dying skill ( and I totally recognise this forum is not typical of the average UK consumer) and do others have a different way of keeping on top of their spending given that most of us have less income in retirement or are using drawdown from a DC pension rather than a monthly wage so income patterns are different?

OldMusicGuy

I maintain a highly detailed annual budget which tracks all actual and projected expenditure. I also maintain a long-term 30 year financial plan which models annual income, expenses, investments, investment growth, tax and inflation over 30 years.

We rely on savings and my DC pension apart from my wife's small DB pensions of around 6K per annum (both 4 years away from SP age).

I don't use the SWR concept in retirement. We only take out what we need from my DC pot as and when it's needed.

Sea_Shell

We've kept tabs on our spending for years, more detailed in the last 3.

We were loosely using the 3-4% "rule" to judge when enough was enough, decided it was, and have now finished work (July).

We're not planning a wildly different lifestyle during our retirement, so our budget is a loose one still.

None of us know what's round the corner, investment wise, but we have more now than when I finished!!

Brilley

While working we ran a fairly detailed spreadsheet which captured all our spending and income for 20+ years. We then used this to plan our (early) retirement a couple of years ago. At the mo we are relying one pension that we were able to take at 60, the rest comes from savings and investments and a bit of part time work. I have completed a fairly detailed ongoing budget that suggests that we can spend considerably more in retirement than we ever did while we were working.


The problem is convincing yourself it's OK to do this as there is still a huge temptation to remain in "savings" mode! In our first years we have actually "over earned" and significantly "under spent" against our original budget.

Its only recently that I have tried to re-train my brain to try and focus on spending what we planned rather than trying to carry on "maintaining/increasing" what we already have.....but it is difficult to get your head around it....

enthusiasticsaver

Brilley wrote: »

The problem is convincing yourself it's OK to do this as there is still a huge temptation to remain in "savings" mode! In our first years we have actually "over earned" and significantly "under spent" against our original budget.

Its only recently that I have tried to re-train my brain to try and focus on spending what we planned rather than trying to carry on "maintaining/increasing" what we already have.....but it is difficult to get your head around it....

I totally get that temptation to remain in savings mode. We have made some large purchases at the beginning of our retirement and initially the withdrawal of large amounts of savings over and above our pensions stressed me out even though they were planned purchases. A few expensive holidays, two e bikes and a car to replace DHs company car as well as a new kitchen really depleted our savings even though we still had plenty of accessible savings and investments and I found that difficult. Budgeting and allocating amounts from our remaining savings towards various categories has helped me feel more relaxed about spending as I can see we have all eventualities covered.

blue.peter

enthusiasticsaver wrote: »

There is an interesting discussion going on over on banking and budgeting and I thought I would ask how those who are retired budget or if indeed they do?

OK, I'm lucky. I have pensions (two of them) that are, together, more than enough to meet my needs. Both are index-linked. My approach is fairly simple. I use AceMoney to keep track of my accounts:
1. One bank current account;
2. PayPal account;
3. Three credit cards (almost all of my spending goes through American Express - because it gives cashback - with Visa and MasterCard for places that don't accept AmEx);
4. One cash savings account;
5. One notional account to keep track of a loan made to a family member.
My S&S ISA is tracked in a separate spreadsheet.

In AceMoney, I set up scheduled payments that automatically create entries for all recurrent spending (council tax, utilities etc) and income (my pensions). Those entries are visible, but greyed out, a month ahead of the payment date. As my credit card statements come in, I set up automatic payments for the whole amount with the bank and record those in AceMoney. The timing of my credit card statements is such that I receive them a few days before my larger pension is due, and then settle them from that pension. If my credit card spending means that I need a bit more cash than my large pension provides, I arrange a withdrawal from the cash savings account. This is a rare occurrence.

This means that I can always see how much I have available a month ahead. Because I put almost all of my spending through my credit cards, I only need to hold a small amount back in my current account to withdraw as cash when needed. Any predicted surplus is transferred either to my savings account or to the ISA pretty much as soon as I receive the income.

There's one little tweak that involves HMRC. My larger pension is paid at the end of the calendar month. Almost all of my bills fall due in the first week of the month. The second, smaller, pension is paid on the 9th. Ordinarily, HMRC would split my personal allowance between the two pensions. However, I asked them to apply it all to the larger pension and none of it to the smaller. This means that I have slightly more money available when I need it to pay the bills. HMRC were happy to accommodate my request. (Maybe I was just lucky and spoke to the right person there.)

JoeEngland

We have an annual budget based on a long term spreadsheet. The budget is split between essentials and discretionary spending, and on top of that we have contingency and a separate pot for holidays. Since most of our retirement income until SP is from DC pensions and cash savings we have to be careful, so I've set up a spending tracker which allows me to track spending monthly and see the variance against budget. The long term spreadsheet is broken down yearly with budget and actual drawdown figures.

Linton

I assume an investment return of about 1% above inflation and calculate the maximum annual expenditure which would leave us with more than sufficient for any care costs by the time we are 90. This is recalculated weekly as part of updating the expenditure records and investment valuations. In practice the calculated exdpenditure is well above what we normally spend so anything we might want to buy of say less than £1K we do without much soul searching.


Major expenditures are planned explicitly as reductions in capital. As long as they dont result in the calculated annual expenditure getting anywhere close to current annual expenditure we would probably go ahead.


This approach ensures that investments falls do not result in large short term reductions in expenditure as the effects are spread over our remaining lifetime. It also gives us early warning if the plans are going astray.

Amateurretiree

We try to keep it as simple as possible.
My NHS pension goes in on the 22nd and pays all monthly regular outgoings like Council tax, gas, electric, insurances etc. Also pays for grocery shopping and transport costs.
OH ‘s SIPP goes mostly to holiday fund( we are having 2-3 USA/ Canada holidays a year for next few years while we are fit enough!).
Also we take £100 a week for incidentals.
That’s it.

House is paid for, we have 5 years of cash in the bank.
We will stop drawing SIPP when state pension kicks in, there will be about half of it left.
We don’t track our spending as such( too busy babysitting granddaughter a few days a week!) but this seems to work for us.

Agree it’s hard to be in’spending’ rather than saving mode!

crv1963

Our plans as we are not yet in the pension phase is to have my DB pension cover utilities/ groceries ie no choice but to purchase things (remainder going into savings) and smaller OH pension to cover personal "pocket money" and luxuries.

Notepad_Phil

As per my mse user name I do love Notepad whilst happily my second love is Excel - and between the two I've always kept a close handle on our income, outgoings (planned and actual) and now we're retired the portfolio of funds/cash and its performance that let us enjoy our retirement.

As for budgeting being a dying skill - I've seen very few people old or young really know what's what with their finances, so I think it's always been a niche interest for most folk.