Budgeting for the current week, month or even year are all things we know will help us get our finances into shape. But while looking a year ahead is just about manageable, it’s much rarer – and often trickier – to look further into the future and pull together a budget that will see us into later life.
Budget forecasting means considering your projected income and outgoings for a certain period of the future (most typically, retirement) and considering how well you’re predicted income will match the lifestyle you hope to lead.
While typical budgeting looks at the concrete figures of the here and now, budget forecasting is far more hypothetical – but that doesn’t mean it’s less useful. By working out projected figures now, you put yourself in a position where you’re able to reflect on your current situation (such as savings, pension contributions and investment) based on future needs (in this case, retirement income).
The life you want to lead
When you picture your retirement, what sort of lifestyle do you have? Ask yourself where you want to live and what sort of luxuries you’ll want, while also thinking about what everyday life will look like.
Cost up the different options that will be available and think about what you consider essentials and what you’d be willing to compromise on.
This will help you work out how much you should be putting away each month in order to hit your retirement goals.
Savings & pension contributions
Then it’s time to review your current savings and pension contributions – if you keep saving at your current rate, how much will you have ready once you reach retirement age? Play around with different numbers and options until you find something that feels comfortable: a happy medium, where you’re putting enough into your pension fund to have a comfortable retirement, without having to stretch yourself too thin right now.
Consider your assets
Of course, savings and a pension pot aren’t the only ways of drawing money after you retire, and at this point you might also want to think about the assets that you have or plan to purchase. For example, the Pensions and Lifetime Savings Association have recently released research showing that almost half – 47% – of 35-54 year olds are planning to make property part of their retirement income plans.
Options such as downsizing or equity release can then allow you to access the money tied up in the property should you have a large expense to take care of or want to splash out on a luxury item.
Available to eligible applicants aged 55-95, equity release allows people to release cash from their home, and is often put towards big expenses in retirement. Equity release will reduce the value of your estate and can affect your entitlement to means-tested benefits. The most popular form of equity release is a lifetime mortgage, which is secured against your home.
With any of these options, budget forecasting can be used to consider how viable they’ll be ahead of time. Rather than putting your hopes in a plan that may never come to fruition, it helps you crunch the numbers now and weigh up your options while you still have time to change course.
If you’re considering equity release we recommend that you read ‘is it right for you?’ carefully.
This post was brought to you by Key Retirement. We are a financial services company specialising in helping people in retirement or approaching retirement age. This includes independent equity release advice for those considering releasing equity on their home. Unless you decide to go ahead, our service is completely free of charge, as our typical advice fee of 1.95% of the amount released would only be payable on completion of a plan. You can contact Key Retirement on 0808 252 9170.