Our spending often grows with our income

Think back to the years before retirement. Perhaps the children have grown up and left home. The mortgage has been paid off. Your income has increased over your working life, and you’ve reached a point where you can afford to enjoy it. 

Maybe you travel more, eat out, go on weekends away, have hobbies that cost money, change the car more often or simply don’t think twice about spending €50 or €100 on something you want. That’s not necessarily extravagant. It’s often just what happens as life changes.

Your financial commitments may have reduced while your income has increased. You get used to it but that’s important — because retirement doesn’t necessarily change your spending habits on the same day that it changes your income. Suddenly, the salary is gone, but the desire to continue living the life you’ve built is still there.

It’s not just about how much money you have

When people talk about preparing financially for retirement, the conversation often becomes: “How much money do I need to retire?” But there isn’t one answer to that question. Everyone’s circumstances are different.

Someone might own their home outright but have expensive travel plans. Someone else might have a mortgage but very few other expenses. One person might want to spend retirement travelling the world, while another is perfectly happy gardening, walking and meeting friends for coffee.

Your health, housing situation, family commitments, savings, pensions, lifestyle and plans for the future will all make a difference. So rather than looking for a magic figure that tells you whether you have “enough”, it can be more useful to understand how your own income and spending will change.

The retirement income adjustment

For many people, the biggest challenge is moving from: “I earn €X every month” to: “I have €X available to spend every month.” Those aren’t necessarily the same thing.

While working, money can come in from a salary, perhaps with bonuses, overtime or other income. Once retired, your income might come from a combination of the State Pension, occupational or private pensions, investments and savings.

The amount arriving in your bank account may be lower. That doesn’t automatically mean you can’t have a good retirement. It means you may need to rethink how you use your money.

Can you plan for the drop in income?

Yes and ideally, this is something to think about before retirement. You don’t have to wait until your first pension payment arrives to discover what it feels like to live on less.

1. Work out what you actually spend now

Look at your current spending over a few months. Don’t just count the obvious bills. Include the things that make up your lifestyle:

• Holidays and weekends away
• Eating out and takeaways
• Entertainment
• Hobbies
• Cars and transport
• Clothes and personal spending
• Gifts
• Home improvements
• Subscriptions
• Occasional large purchases

You might be surprised by where your money actually goes. And that’s useful information.

2. Separate the essentials from the lifestyle spending

Try dividing your spending into two broad categories.

Needs — the things you have to pay for. Your home, utilities, food, insurance, transport, healthcare and other regular commitments.

Wants — the things that make life enjoyable. Holidays, restaurants, hobbies, entertainment, days out and the little luxuries that you’ve become accustomed to.

Neither category is “bad”. The purpose isn’t to tell yourself that you can’t enjoy retirement. It’s to understand which spending is essential and which spending you can adjust if you need to.

3. Look at your future income realistically

Before you retire, find out what income you are likely to receive from your various sources. Don’t base your plans on your current salary. Instead, create a realistic picture of what your monthly income could look like once you stop working.

Then compare that with what you’re spending today. The difference is what you need to think about.

Don’t automatically try to replace your salary

This is an important point. You don’t necessarily need to replace your entire working salary to maintain a good standard of living. Your financial circumstances may have changed considerably since you started working.

Perhaps you no longer have:

• A mortgage
• Children’s expenses
• Commuting costs
• Work clothing
• Daily coffees and lunches
• Work-related travel
• Pension contributions
• Other costs associated with employment

So the question isn’t: “How can I replace my salary?” It might be: “How much do I actually need to maintain the life I want?” That’s a very different question.

Give yourself time to adjust

There can also be a psychological side to this. When you’re working, your salary can provide a sense of security. You know that another payment is coming next month.

In retirement, you may become much more aware of what you’re spending because you know there isn’t a salary waiting for you at the end of the month. You might find yourself thinking:

“Can we afford that?”

“Should we really go on that holiday?”

“We’re spending our savings!”

That’s perfectly understandable.

It can take time to become comfortable with a different relationship with money.

Your money now has a different job

When you’re working, your income is helping you build your life. In retirement, your money is helping you live your life. That can feel very different.

You may have spent decades being told to save for retirement. When retirement finally arrives, it can be surprisingly difficult to give yourself permission to spend some of that money. 

However, that’s what it was saved for. The challenge is finding the balance between enjoying today and protecting your future.

Create a retirement spending plan

Instead of simply asking whether you have enough money, think about what you want your money to do for you. You could divide your spending into areas such as:

Everyday living
The regular costs of running your home and life.

Enjoyment
Holidays, meals out, hobbies, entertainment and experiences.

Unexpected costs
Home repairs, replacing a car, dental or healthcare costs and other surprises.

Future
Money you want to keep available for later years.

This can make retirement spending feel much more manageable. You aren’t simply watching money disappear from an account. You’re deciding what you want your money to achieve.

Remember that retirement spending can change

Your spending in the first few years of retirement may not look anything like your spending ten or fifteen years later. 

You might initially want to travel extensively while you’re fit and healthy. Later, you may travel less but spend more on other things. 

Your priorities can change too. The important thing is not to create a retirement budget once and assume it will remain exactly the same forever. Review it. Your retirement is likely to evolve.

What if the numbers don’t work?

This is where planning can make a real difference. If your expected retirement income is significantly lower than your current spending, you have options.

You might:

• Retire a little later
• Reduce some spending before retirement
• Pay off debts
• Build additional savings
• Reduce your working hours gradually
• Continue with some part-time work
• Change how often you travel
• Prioritise the things that matter most to you

You don’t necessarily have to cut everything. Sometimes it’s simply about deciding what is worth paying for.

If travel is hugely important to you, perhaps that’s where you want your discretionary money to go. If eating out isn’t particularly important, that’s an area where you might spend less.

Retirement can be an opportunity to become more intentional about your spending rather than simply spending because you can.

The years before retirement are an opportunity

If you’re still working, you have something very valuable: time to practise.

Try living for a few months on the income you expect to have in retirement. You don’t have to make it miserable. Instead, use it as an experiment. Put the difference into savings and see how you feel.

Can you maintain your lifestyle comfortably? Are there things you would miss? Are there areas where you could easily reduce spending? What would you like to continue doing in retirement?

You may discover that the lower income isn’t as frightening as you expected. Or you may discover that you need to make some changes.

Either way, it’s much better to discover that before retirement than afterwards.

Retirement isn’t about having the biggest possible income

There can be a temptation to think that a successful retirement means maintaining exactly the same standard of living you had while working. But perhaps retirement gives you the opportunity to redefine what “the good life” actually means.

You may have spent your working years earning money so that you could eventually have more time. Now you have the time. The question becomes:

What do you want to spend your money on?

That might be travel.

It might be family.

It might be hobbies.

It might be your home.

It might be experiences.

Or it might simply be having the freedom to say yes to a coffee, a lunch or a spontaneous day out without having to think about work. There is no single right answer.

The aim is confidence, not perfection

You don’t need to know exactly how much you will spend every month for the next thirty years. Nobody can predict that accurately.

What you can do is understand your own circumstances, know roughly what income you can expect, identify the things that matter most to you and have a plan for managing the difference.

The goal isn’t necessarily to spend as little as possible. It’s to feel comfortable and confident about the money you have. Retirement isn’t simply about losing a salary. It’s about moving from a life where your income is largely determined by your work to a life where your money needs to support the life you choose.

And that is something worth planning for.