Retirement spending and the importance of planning
Planning for what you are going to need to spend in your retirement is so important. So having a plan in place such as a pension is a great way to save money for your future.
Why is Cashflow modelling* important?
Cashflow modelling is an important tool in the build up to retirement. It shows the balance between expected income and anticipated expenditure and how the balance changes through retirement. It is a common assumption that expenditure is at its highest in early retirement and declines through retirement. However, a new study by the Institute of Fiscal Studies (IFS) suggests this assumption may be incorrect.
What does the IFS Study Show?
Based on data collected between 2006 and 2018 the IFS study shows that the average spending of retirees with higher-than-average incomes actually increases through their 60s and 70s, and only declines once retirees are in their 80s. Spending increases were driven in large part by increased spending on holidays and other leisure activities typically undertaken with the additional time retirement provides. For retirees on average incomes their spending remains broadly flat through retirement. Interestingly, in the same period, it was common for income to increase faster than expenditure in early retirement. Therefore there was a trend for retirees to save more and more in retirement.
Understanding cash flow during retirement
In the new world of managing pension drawdown, where there is the real possibility of pension funds being exhausted during retirement, it is fundamentally important for pensioners to understand their cash flow through retirement, particularly if their expenditure in early retirement will be higher than expected.
Interested to know more?
Our fantastic team of financial advisers are always on hand to help. If you would like to discuss pension planning, cashflow modelling or anything else in more detail, please contact us here or by calling 01903 534587.
*Cashflow modelling is not regulated by the Financial Conduct Authority