How income needs change over time

It’s impossible to predict how the income needs of any individual will change during retirement, but it is unlikely the pattern of expenditure will remain the same (even ignoring inflation). A typical pattern of expenditure is ‘U’ shaped. This isn’t universal so it should be treated with care. Nevertheless, it will apply in many instances. The ‘U’ shape pattern assumes three distinct phases.

Active Phase

This is the phase immediately after retirement where people are usually in good health and keen to do all the things they planned to do when they stopped work.

This often involves travel and holidays, socialising and entertaining plus expenditure on hobbies and interests. Expenditure is usually high during this period.  

Passive Phase

At this stage, people are beginning to feel their age. Their social circle may have diminished as friends fall ill or die.

Chronic medical conditions appear and travel or holidays often have to be organised around hospital appointments. Typically, expenditure during this period reduces. 

Long Term Care

The final part of the ‘U’ equates to an increase in expenditure associated with the cost of long term care. This can be substantial particularly if residential care is required.

More than two thirds of people over age 85 in the UK have a disability or longstanding illness.