How retirement costs can change over time – and how to plan for them

It’s easy to assume you’ll need roughly the same amount of money each year throughout your retirement. But retirement spending often changes as your lifestyle, health and circumstances evolve. For example, many people find their costs are higher at the start of retirement, ease off later and go up again in later life.

Being aware of these shifts can help you plan for a more secure retirement. We explore the potential costs of each stage of retirement.

1. Early retirement – active years and higher spending

If you’ve paid off your mortgage, and your children have left home, some of your day-to-day costs may fall. But retirement doesn’t automatically mean you’ll spend less overall, especially if you retire early. While everyone’s different, these early retirement years tend to be some of the most active. Chances are you’ll be out and about doing everything you sat at your desk daydreaming about: days out, hobbies and finally travelling to the places you’ve always wanted to see.

Once you’re 55 or over (rising to 57 from April 2027), you’ll be able to access your workplace and personal pensions. However, if your pension savings are limited, you may want to think carefully about how quickly you draw on them, particularly as your retirement could last several decades. It might make sense to pace yourself and delay big-ticket trips until you receive the State Pension.

Some questions to think about include:

• How much will your early retirement plans really cost?

• Would spreading larger expenses over time give you more flexibility later?

• Do you have other income to support this phase, or are you relying mainly on your pension?

2. Your 60s and 70s: peak income and spending years

Once you start receiving the State Pension – the full amount is currently £12,548 a year – you may find you have a bit more financial breathing room. If you’re still active, this could be your retirement sweet spot – the time to really enjoy the freedom that retirement brings. You may want to travel more, replace your car or finally get that conservatory, for example.

The Retirement Living Standards, based on independent research by Loughborough University, show how much someone retiring today would need to spend in retirement to achieve three different standards of living. They assume you own your own home with no mortgage.

• Minimum: £13,400 a year for one person and £21,600 for a couple. This could cover all your needs, along with some fun, such as one week’s holiday in the UK.

• Moderate: £31,700 a year for one person and £43,900 for a couple. This could give you more financial security and flexibility, with a two-week 3* all-inclusive Mediterranean holiday and one long-weekend off-peak break in the UK.

• Comfortable: £43,900 a year for one person and £60,600 for a couple. This could give you more financial freedom and some luxuries, including a two-week 4* half-board Mediterranean holiday and three long-weekend breaks in the UK.

These benchmarks can be a helpful starting point for thinking about the lifestyle you’d like in retirement – and whether your expected income lines up with it.

Some questions to think about include:

• What income will you have, such as the State Pension, private and workplace pensions and other savings?

• How much do you think you’ll spend each year, including one-offs such as a new car and home improvements?

• If your spending is higher now, how will you make sure you’ll still have enough money for later on?

• Do you need a buffer for inflation and unexpected costs, such as helping your children?

• If you’re drawing from investments, have you thought about how market ups and downs could affect your income?

3. Your 70s to mid-80s: quieter years with less spending

Your costs could come down to their lowest level during this phase. You may have ticked off lots of places on your bucket list and scaled back on activities. And you’re probably less physically active and spending more time at home.

This period can offer financial relief. While costs don’t disappear, everyday spending may become simpler and more predictable.

It’s a good time to use this window to reassess your savings and make sure they’ll stretch into later years.

Some questions to think about include:

• If your spending drops, what will you do with any surplus – keep it as a buffer, spend it or use it to support later-life costs?

• Might some costs increase as you spend more time at home, such as utilities, home maintenance and subscriptions?

• If your health changes, could you afford extra support at home, such as help with daily tasks or having your home adapted?

4. Your mid-80s and beyond: later-life costs can surge

This is the stage when you may need a helping hand at home. Or you might need to go into a care home. Both these options can come with significant costs.

Costs can vary widely, but average residential care costs are about £67,000 a year and average nursing home care costs are about £79,000 a year¹.

If you go into a care home, the amount you pay is based on your savings, assets, property and income. So, if you still have some of your pension left, depending on how much you have, there’s a chance you’ll have to pay for your fees in full.

Planning ahead – such as adjustments to your home, family discussions or understanding how care costs are assessed – can help you manage this phase with more confidence.

Some questions to think about include:

• If you find you need care, how do you think you’d pay for it?

• Would it be helpful to speak to people close to you about what you’d want?

• Do you know which of your assets might count towards care costs – and what that could mean for how much you pay?

How to plan for the changing costs of retirement

As we’ve seen, retirement costs can change significantly. The good news is that this is something you can plan for. By understanding that spending may be higher at the start of retirement, ease off in later years and rise again if you need care, you can set a realistic budget and build in a buffer.

The more you save now, the more flexibility you’ll have at each retirement stage. And then you’ll be able to look forward to your later years with greater confidence.

¹ Care home costs 2026, carehome.co.uk

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