Case study 1 –

Rachel is ready to retire, she has just celebrated her 66th birthday and has a pension pot of £100,000.

From her pot she was able to take a 25% tax-free lump sum of £25,000 which she used to help fund her son’s wedding and pay off the remainder of her mortgage.

This left her with £75,000 left in her pension pot which she is able to take in flexible monthly amounts as part of a drawdown plan until the money runs out. Which will be quite some time, if she sticks to her budget.

Knowing that her spending habits will change now that she is no longer working, Rachel set out to create a budget that would fit her lifestyle in retirement. Once a week she meets her friends for a few drinks and the occasional trip to the theatre. This costs her about £30 each week. And she still wants to make sure she and her husband can escape to the sun for a couple of weeks each year. Rachel has set a target retirement income of around £12,960 a year. She thinks this will be enough for the basics and one or two nice things throughout the year.

With the options she has chosen, Rachel’s pension pot will last her for 24 years. So when the money is gone she will need to rely on the State Pension. By which time she will be 90, so Rachel thinks she is on track for the retirement she hopes for.

Let’s look at her yearly numbers

The income from her drawdown can be added to her state pension and go towards those things that she is keen to keep up in retirement.

Total outgoings

She still has the same outgoings as most people her age.

What this means…

This would mean that Rachel's budget is still pretty tight outside of this. Leaving her £1,239.16 per year. So she has to budget incredibly carefully in order to be able to maintain the lifestyle she wants to lead in retirement, or consider taking a lower amount over a longer period.