Income Needs in Retirement

Retirement presents a series of opportunities and challenges; a primary concern for many people is ensuring they don’t run out of money. A sustainable, well-structured retirement income strategy is therefore desirable for any retiree.

To enjoy a comfortable old age means doing some in-depth thinking well in advance, asking yourself what your goals are and how much money you want to have at your disposal. Other prime considerations should be – will I be able to maintain my lifestyle? Do I want to leave an inheritance? How might my financial circumstances change? Will I run the risk of outliving my retirement pot?

So how should you approach creating a robust financial plan?

A hierarchy for retirement income

Many people find it helpful to think in terms of Maslow’s famous Hierarchy of Needs. His pyramid contained different levels of need that human motivations move through, starting with the physical requirements for human survival and ending with mankind’s highest aspirations. Using this hierarchical approach in a personal finance context was pioneered by money guru Mitch Anthony, who employs it as a useful aid in deciding how to plan your income in retirement.

Survival Income

At the base of the pyramid, survival income comprises the income you need to pay all your basic day to day household expenses. It involves drawing up a budget to cover your regular bills and running costs.

Safety Income

The next layer up, safety income is the amount you might need to meet life’s unexpected events. This could include health and later-life care costs and any emergency financial help you might want to give your family.

Freedom Income

This layer involves assessing the likely cost of doing all those things that you maybe never had time to do prior to retirement. This would include holidays, major purchases or other indulgences.

The pinnacle of the pyramid

Many people add a gift layer representing money they want to pass onto children and grandchildren during their lifetime. Some add a dream layer, their ultimate ‘bucket list’, to the very top.

By viewing your finances in this way, you can gain a clear picture of how much you need to have saved by the time you reach retirement.

By working with your adviser, you can decide how much income you would like to meet your needs for various stages of your life, taking into account your personal and financial circumstances, lifestyle goals, attitude to risk and capacity for loss. Your Polestar adviser will be able to recommend the right mix of assets to help you achieve  your goals.