Retirement is something that we tend to not think about very much when we are young as it draws closer, we might start to worry about it and how we will manage. It can be a good idea to think about it early as that will give us longer to prepare and to save up for it. There are advantages to saving early, but you might wonder if it is worth it considering other things that you need to pay for. It is good to find this out and you can start by doing some calculations.
When you are doing your calculations it is easier to ignore inflation. We know that prices will continue to rise, but it is very hard to predict what they might be in the future and this gets increasingly harder, the further away we are from retirement. It is therefore a lot simpler to calculate it as if you were retiring now. We can assume that income and expenditure will rise at the same level and therefore it will not matter if we ignore rising prices. This may not be the case, but it is so difficult to predict that it can be better to just assume that it is and base your calculations on that. It can be best to plan for a worse case scenario though and assume that you will need extra money than you calculate. If you have too much when you retire it will be better than if you do not have enough.
You will need to calculate all of the costs that you think you will have once you are retired. It can be tricky, but look at the costs that you have at the moment and start there. You will have to change them a bit as your needs will be different. Some items will go up in price and some will go down.
For example, your gas and electricity bills may go up if you normally work outside of the home as you will be likely to be staying in more and using more appliances and heating in the house. You may also feel the cold more as you get older and need to have the temperature higher. You may pay more money on entertainment and leisure activities as you will have more free time, although you may not go on holiday so often because you may not need to get away as you will not have the stress of work to need to escape from. You may need to use the car or public transport more, if you are less mobile and cannot walk, but that depends on how much you use it at the moment, whether you walk to places now or whether you drive will determine that. Some people downsize in retirement, perhaps but a bungalow or a home with less bedrooms and this can mean that it is cheaper to heat and maintain and will save money. However, others like having space for children, grandchildren, friends and other family members to stay as they have more time for entertaining. It may be hard to predict which you might be likely to do, but it is worth having a think.
A good methodological approach is to go through everything you pay out for at the moment and consider whether that might be more or less expensive if you are retired. It is not a fool proof method but it will at least give you some idea of what to expect. It is wise to think about extra things that you might need to buy that you do not buy at the moment as well. It could even be worth talking to people you know that are retired and they might be able to help you with some ideas. They will know how their spending changed and should be able to help you by letting you know whether there were any surprises. Ask a few people if you can as their experiences are likely to differ.
It is a good idea to also work out how much income you will have when you are retired and that will help you to then know whether you will have enough to cover the costs of the outgoings that you have calculated. You can go onto the government website to get a calculation of how much state pension you will be likely to get based on your National Insurance payments. It will tell you how many years you will have to keep paying in until you qualify for a pension and whether you will get a full pension or not. You may also be able to find out how much work or private pension you are due to get using similar methods with your providers. It might be that they will send you a yearly statement which will have that estimate on it.
You may have others sources of income as well as your pension though. It might be that you will have some bonds or other savings accounts that pay out interest. It could be that you have some different types of investments that give regular returns as well. You may have plans to get something together before you retire, perhaps investing in a rental property, buying some shares or whatever so make sure that you calculate this as well. It can be tricky to work out exactly how much income might come, especially from investments when there is a risk that there may be no income, and you may lose money as well as the chance that the return could be really big and you will do really well.