Balancing leisure and legacy: Create a retirement spending plan

Retirement is a time to enjoy your years of hard work, but for some it’s also important to consider the financial legacy you want to leave behind. Creating a retirement spending plan that balances leisure time with leaving money for loved ones can help towards a more fulfilling future. 
 

Understanding your retirement goals

The first step in creating a retirement spending plan is understanding your goals. What do you want to achieve in retirement? For many, this includes enjoying leisure activities, such as travel, hobbies and spending time with family and friends. At the same time, you may want to leave something behind to help your loved ones. Clearly defining your goals will help you create a balanced spending plan that aligns with your priorities.
 

Assessing your financial situation

Before you can create a spending plan, it's essential to assess what your financial situation will be both now and in future. This includes understanding your income sources such as your pension, the state pension, any paid work you may have in retirement and any other investments or savings. 

Reviewing your financial situation will give you a clearer picture of your retirement income and help determine how much you can afford to spend on leisure activities and how much you can allocate to your legacy.

Did you know?
The full new state pension is currently £230.25 per week, but this amount can vary based on your National Insurance (NI) contributions. If you don’t qualify for the full amount then you may be able to buy more NI qualifying years to boost your weekly income. To find out how much you’re on track to receive you can view your state pension forecast here www.gov.uk/check-state-pension.

 

Creating a budget

Once you have a clear understanding of your financial situation, it's time to create a budget. Start by listing your essential expenses such as your mortgage/rent, monthly bills and food costs. These are the costs that you need to cover to maintain your standard of living. 

Next, it's time to work out how much is needed for the more fun stuff. This could include travel, dining out, hobbies and entertainment. Finally, how much would you potentially want to leave behind? Consider things such as gifts to family members, setting up trusts or leaving a charitable donation.
 

Consider what type of income you want

Now you’ve worked out a budget, you should start thinking about the type of income that would work best for you. When it comes to taking an income from your pension, there are a few options. The two most popular are a guaranteed income for life and flexible cash or income. Here’s a very brief snapshot of each: 

Annuities (known as a guaranteed income for life) - You can use some or all of your pension to buy an annuity which provides a guaranteed income for life. 

• An annuity will pay an income for the rest of your life, no matter how long you live. So you don’t need to worry about your pension running out.
• You can normally choose to take up to 25% as a tax-free lump sum at the start. The rest is taxed as income.
• The income you receive doesn’t tend to change. This means the amount you receive just now might not stretch as far later in your retirement.
• You can choose an annuity income that will grow each year, but you tend to start with a lower amount.
• There will be no lump sum left when you die. You can choose for an income to be paid to a loved one when you die, but again this means you’ll receive a lower amount.
• Annuities can be a good option for people who prefer a predictable income, want the security of an income for life and don’t mind less flexibility than drawdown.

Drawdown (known as flexible cash or income) – You can move some or all of your pension into drawdown which allows you to take flexible withdrawals from your pension while keeping the remainder invested. 

• This option provides more flexibility over how much and when you receive an income. Let's say you wanted to withdraw more one year for a family holiday for example, then you have the option to do that (as long as you have enough in your pot).
• You can choose to move your full pension into drawdown and take up to 25% as a tax-free lump sum at the start or you can move your money in stages and  take 25% of each amount tax-free. The remaining amount is taxed as income.
• Your money remains invested. This means the value of your pension can grow. Although as with all investments it may fall in value and you could get less than you put in.
• As you are drawing down money from your own pension pot, there is a risk if you withdraw too much that you run out of money later in retirement. So you need to manage your money carefully.
• Unlike an annuity, when you die any money left in your pot can be paid to your loved ones.
• Drawdown can be a good option for those who want flexibility with their money, are comfortable keeping their money invested and would potentially like to leave a lump sum to loved ones.
   

Next steps

Creating your spending plan and choosing the right income option are two very important steps towards a more enjoyable retirement. But they’re not the easiest things to get right. 

Did you know our advisers have access to sophisticated modelling tools that help create a budget, let you know how much you could safely withdraw, how long your pension might last and can factor in different investment options and amounts for leaving behind?

Why not book a no-obligation chat with our expert financial advisers and they can run through all this with you. To get started, simply click the button below.

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