In order for workers to enjoy a comfortable retirement that includes holidays abroad, a generous clothing allowance and a car they will need to have saved enough for a £33,000 per year income.
According to research carried out by Loughborough University and the Pensions and Lifetime Savings Association (PLSA), workers who only manage to save enough for a retirement income that provides them with £10,200 a year (£15,700 for couples) will achieve a minimum living standard, those who managed to save enough for £20,200 a year (£29,100 for couples) will be able to live a moderate lifestyle during retirement and those who are able to save enough for £33,000 a year (£47,500 for couples) will be able to enjoy a comfortable retirement.
The study took all aspects of people’s lifestyles into account when deciding what constituted as a minimum, moderate and comfortable retirement lifestyle. The report found that a minimum living standard will enable a single retiree to spend £38 per week on a food shop, have a one week holiday and a long weekend in the UK per year, will not be able to afford a car and will have £460 per year for clothing and footwear.
A single person able to afford a moderate retirement will be able to spend £46 on a food shop each week, enjoy two weeks in Europe and a long weekend in the UK each year, and will have £750 to spend on clothing and footwear each year.
Meanwhile, a single person enjoying a comfortable retirement will be able to spend £56 per week on their food shop, enjoy three weeks in Europe every year and spend £1,000-£1,500 on clothing and footwear each year.
Last month we reported that annuity rates had fallen to a historic low and for those looking to purchase an annuity to secure an income for life, a £50,000 purchase price for those aged 65 would give them £2,557 per year. Those saving for retirement should keep in mind that the full state pension currently pays £8,767 a year, so a single retiree who has worked for 35 years will need £1,433 per year to make up the shortfall. To enjoy a moderate retirement, a single person will need £11,433 a year to make up the shortfall, while those aiming for a comfortable retirement will need to have saved up enough to afford an extra £24,233 per year on top of the state pension.
Those saving towards retirement should also keep in mind other assets could help to top up their pension pots, for example downsizing their home or releasing money from their house through equity release. Ideally, those saving for retirement or about to retire should seek independent financial advice to make the best decisions for their personal circumstances.
Commenting on the study, Steven Cameron, pensions director at Aegon, said: “The new Retirement Living Standards launched by the PLSA are a useful addition to tools that can raise awareness of what you might need to save in order to have a certain lifestyle in retirement. Anything that helps individuals better engage with the reality of their future lives in retirement has to be a good thing. The sooner people are able to picture the retirement they aspire to, the sooner they can start making sure they are paying in enough, or investing appropriately, to deliver on that aspiration.
“The standards will help people undertake a ‘reality check’ on their retirement needs and aspirations and will hopefully encourage them to take early action. Having rules of thumb and broad-brush examples will help point people in the right direction. However, we then need to ensure people build on this and for many, there will be real benefit in seeking financial advice or using other more individualised tools to further personalise their retirement plans and achieve the lifestyle in retirement that’s right for them.”
Richard Eagling, head of pensions at Moneyfacts.co.uk, added: “One of the biggest problems that individuals face when planning their retirement is that they are often in the dark as to how much they need to save into a pension and what type of lifestyle their pension pot will ultimately be able to support. The new UK Retirement Living Standards are a simple way of helping people picture their future retirement and what that might cost. Most people hear the message about saving more into their pension, but this new initiative will provide some clear examples of what is realistic to expect. The hope is that the UK Retirement Living Standards will be widely adopted by the pensions industry, and have a similar impact as the five-a-day healthy eating initiative.”
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