How to Have a Higher Standard of Living in Your Retirement

Maintaining a good standard of living after retirement can be difficult. Not only is the income usually lower than it used to be, but taxes can also become a burden.

Taxes may still need to be paid during retirement

An analysis by Key concluded that almost 14% of the yearly income in retired households is lost to taxes. Many people may not realize that income tax may still need to be paid after retirement.

This applies to all income above the personal allowance. A personal allowance is an amount you can earn without being taxed. Currently, you do not have to pay tax if you have received less than or up to £12,570. Unfortunately, even the State Pension is taxed.

Not only is income tax something to think about, but also council tax can be expensive. Research by Key Retirement Solutions shows that income tax and council tax can reduce the average income in a retired household by 13.9%.

“While national insurance contributions cease when you retire, you still need to pay income tax and council tax so it pays to budget for these bills as part of your retirement planning. If you haven’t accounted for tax within your budgeting, losing almost 14% of your household income can have a significant impact on your standard of living throughout retirement”, Will Hale, CEO at Key, explains.

Next to paying taxes, retirees need to think about the cost for certain necessities such as household items and clothes as well as a car and possibly private health insurance. This can quickly become very expensive. There are, however, things that can be done to increase the quality of life for retirees.

Ways to increase the standard of living in retirement

Here are some options to take advantage of:

Getting equity release on your home

By taking advantage of equity release plans it’s possible to take out a loan in retirement. This applies to homeowners whose property value is £70,000or above and who are at least 55 years old. This loan plus interest usually only needs to be repaid once the agreed deadline has passed and any debt will not be passed on to family members.

Investing from a younger age

Younger people often neglect saving for their retirement, but the earlier you begin to save, the more you will have available later on. Some chose to invest from a younger age, for example in index funds or bonds. While investing can be risky, it’s possible to earn larger profits. Other options include investments in real estate or even cars.

Set budgets and savings targets

A strict financial plan can help make retirement much easier in the long run. Spending too much early on can be disastrous, which is why it’s important to stay within a certain budget. Setting up savings targets in earlier years and making a commitment to stick to them will prove to be a huge relief later on.

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