A new report has worked out exactly what a comfortable retirement will cost you.
We now have more information, more choices, and more responsibility for our retirement savings. But will the future we want be the future we are able to get?
The Retirement Living Standards, launched by the Pensions and Lifetime Savings Association (PLSA), has been developed to help people picture what kind of lifestyle they could have in the future.
Pitched at three levels: minimum, moderate and comfortable, the standards have been designed to act as a practical and meaningful starting point for anyone who is unsure about how much to put away.
Like the five-a-day healthy eating initiative, the PLSA’s ambition is for the Retirement Living Standards to become a widely adopted industry standard.
According to the trade association, a single person will need £10,200 a year to achieve the minimum living standard, £20,200 a year for moderate, and £33,000 a year for comfortable. For couples it is £15,700, £29,100 and £47,500.1
The minimum living standard covers most people’s basic needs plus enough for some fun - including social participation and social occasions. For example, you could holiday in the UK, eat out about once a month and do some affordable leisure activities about twice a week.
The moderate lifestyle provides, in addition to the minimum lifestyle, more financial security and more flexibility. For example, you could have a two-week holiday in Europe and eat out a few times a month.
At the comfortable level, retirees could enjoy some luxuries like regular beauty treatments, theatre trips and three weeks in Europe a year.
By giving savers a general figure that they can understand, the hope is that savers can then start to develop their own personal targets based on their individual circumstances and aspirations.
Assuming you qualify for the full State Pension of £8,767 a year, the PLSA says you’ll still need to build up a pension pot worth at least £587,116 to achieve a comfortable retirement. This is if you want to turn your pension into an annuity, which pays you a guaranteed annual income for life in retirement.
Given that the average amount sitting in pension pots after a lifetime of saving is £61,8972, many retirees may be shocked to learn how little income their savings will provide.
“There’s still a long way to go in terms of raising awareness,” says Tony Clark, Head of Retirement Marketing at St. James’s Place. “It’s vital to realise that building a decent retirement pot means being engaged with the process early on.”
“The good news is that through a combination of the full State Pension and auto-enrolment in a workplace pension, the minimum level should be achievable for most people.”
“But current minimum contribution levels are not enough to get average savers over the line from a minimum to a moderate lifestyle standard. That’s why it’s vital that they are provided with the education, tools and advice to make better and more proactive investment decisions during their working lives,” adds Clark.
A financial adviser will give you an idea of what your retirement income will be, based on how much you’re saving.
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