How much do you need for a comfortable retirement?

Dreaming about the retirement you want is one thing, but it can be not easy to understand what funds you’ll need to finance these dreams and how this compares to the income you can expect to receive from your pensions and investments. It’s even harder to keep track when the cost of living is spiralling. Our partner Quilter Financial Advisers are helping more people foresee how their retirement might look like and plan for a better financial future.

Retirement planning is still a relatively new concept for most people. That is because, traditionally, retirement was viewed as the ‘end’ of something, whereas now it is seen as a ‘second chance in life’. In addition, life expectancy increased. Back in 1982, for instance, the national retirement age was 65 for men and 60 for women but, according to the Office for National Statistics, average life expectancy was just 70.8 years for men and 76.8 years for women. In 2022 life expectancy had risen to 79.0 years for men and 82.9 years for women. As a result, more people are thinking of retirement as being the beginning of a new adventure. And to plan an adventure, you also need a budget.

Setting standards

The Pensions and Lifetime Savings Association (PLSA) developed its Retirement Living Standards to help people envisage different lifestyles in retirement, based on the costs of common goods and services. They broadly categorise these into 3 retirement living standards:

• Minimum – geared towards paying for essentials with all your needs covered.
• Moderate – gives financial security and some flexibility.
• Comfortable – provides more financial freedom and some luxuries.

According to Quilter Financial Advisers, the cost of a minimum lifestyle for a single person increased from £10,900 in 2021 to £14,400 in 2024, a rise of 32%. For a couple, income of £16,700 required in 2021 rose to £22,400 in 2024 a 34% increase. Costs factored into this lifestyle include £96 for a couple’s weekly food shop, eating out about once a month, a one-week annual holiday in the UK and some leisure activities. But there is no budget to run a car.

Dreaming of more than the minimum?

The annual budget for the moderate standard has risen to £31,300 for a single person and to £43,100 for a couple. This includes a two-week holiday in Europe and eat out a few times a month. At the Comfortable Retirement Living Standard, retirees can expect more luxuries like regular beauty treatments, three three-week holidays in Europe each year and theatre trips. With an annual combined income of £59,000 for couples and £43,000 for a single person you can have a retirement with few or no money worries. As an example, the weekly food shop for a couple in this lifestyle amounts to £230 per week.

How much in savings do I need?

For a comfortable retirement, PLSA estimates that a couple who are both in receipt of the full new State Pension would need to accumulate a retirement pot of £328,000 each, based on an annuity rate of £6,200 per £100,000. However, this may vary according to life expectancy, health-related issues or when you decide to retire. Your retirement age will have a significant impact on the amount of pension income you get. From age 55 (increasing to 57 in 2028), you can access your pension fund, but the sooner you do this, the longer you’ll have to make your pot last, and that will also have an impact on the amount you receive each month. Currently, a 55-year-old man in the UK can, on average, expect to live to 84, which means he will have to cover the cost of living for almost 30 years. Women tend to live longer, so their pot might need to last 35 years.

If you’re concerned about how to fund the retirement you want, our partners at Quilter Financial Advisers can help you prepare financially. Retirement planning involves visualising your key goals for your retirement years and setting up a plan to help you achieve those goals through financial planning.

Approver Quilter Financial Services Ltd and Quilter Mortgage Planning Limited. 26 June 2024.