Aligning Plans with Finance - Part 1

Now that we understand what and where we want to go with our retirement plan and we understand our current financial status we need to align the two.

As this is quite a large subject, I intend to break this down into 2 parts.  The first part is understanding how much we need to live in retirement.  The second part is about understanding how long it will take and if we can achieve that figure.

Based on the plan and the financial baseline that I created, I will be able to calculate how much I need on a day to day basis and then calculate this out to annually show how much I will need to live in line with my plan.

As I am planning to downsize and move to a different location, I know that I will no longer have a mortgage and that my house running costs will reduce.  To work out how much my new running costs will be for the type of house that I am planning to buy, I looked at Zoopla.co.uk and searched for the type of property in the area I am thinking about buying as they provide a useful cost of living calculator based on that property.  I included broadband and home phone, council tax, energy, utilities and home insurance.

For the car, I have taken into account current average cost of fuel, MOT, Tax, Service, insurance and annual car cost of replacing every 5 years.

As I have already included home insurance in my house running costs, I don’t have any further insurances.  We don’t have life insurance because I don’t see the point providing that you have a certain amount of savings.  Health insurance is covered by work and later in life I will use the NHS and travel insurance which is included in my bank account fees.

Both my wife and I tend to buy our mobile phones outright and not get it included in the contract.  This means that we have sim only contracts.  Mobile phone insurance is covered by our account fees.

Food speaks for itself, this is based on what we spend today throughout the year in Tesco's.  This seems quite high for me as we are spending over £100 a week for two people on average and is probably an area that I should look at reducing.

Neither my wife or I are great shoppers, however it would seem that we have a bit of a Amazon addiction.  This also includes, clothes, make up and any other bits that we have bought throughout the year.

Entertainment is a very broad area, I have included in this any visits to restaurants, pubs, cinema, day’s out, etc.  Alot of this is covered by cash any cash that I have withdrawn throughout the year is included here.

I have included roughly the same amount that we currently spend on holidays in my calculations, this would be four trips a year.  This may need to be adjusted as we get older and how we want to spend our holidays changes.  Currently it includes a 2 week nice holiday , a weeks beach break and two city breaks .  I have excluded a ski holiday as I am not sure we are still going to be able to do these once we retire.

In services, I have included Netflix, Amazon, Homecare, tv licence, account fees and Spotify.  You may not agree that Homecare and account fees go in this group and should sit in insurance.  That is your call, as long as you include them it shouldn’t matter.

Finally, annual average is a figure that I have included to cover such things as replacing a TV or a washing machine breaking down.  I have worked on the assumption that most items last 5 years before requiring replacing and that I would probably replace one a year.  

Based on all the above calculations, my wife and I will require annually to live the way that I currently do.  This doesn’t take into account any unforeseen issues that may arise that would require significant funding but we have our emergency pot for this and we would still need this.  It also doesn’t take into account inflation and the fact that £1 will be worth less tomorrow than it is today.  Unless I am planning to put my money under a mattress and not make more than inflation interest on it, this shouldn’t be a problem and I will cover why in a later post.

As I understand how much I need to live in retirement, I can now look at how long is it going to take me to get there.