Rising Retirement Costs: How Much Will You Need?

retirement costs

Individuals now need significantly more for a comfortable retirement due to rising living costs and family support expectations.

In the context of the ever-evolving financial landscape, individuals in the UK face a stark reality check when it comes to planning for retirement.

The Pensions and Lifetime Savings Association (PLSA) has recently highlighted that an individual will require an annual income of £31,300 for a moderate lifestyle in their later years. This figure marks a significant £8,000 increase, driven by the escalating cost of living and the anticipated need to assist grandchildren financially.

The PLSA, drawing on insights from focus group studies, presents these figures as crucial benchmarks for those mapping out their retirement finances.

This surge in required income is primarily attributed to the steep rise in food and energy prices.

In collaboration with the Centre for Research in Social Policy at Loughborough University, the association categorises retirement income needs into three tiers: minimum, moderate, and comfortable.

For a sole individual, the annual income needed spans from £14,400 at the minimum level to £43,100 for a comfortable retirement.

Couples, on the other hand, need between £22,400 and £59,000, depending on their desired standard of living.

Nigel Peaple, PLSA’s Director of Policy and Advocacy, emphasises the substantial strain the cost of living crisis has imposed on households, a strain equally felt by those in retirement.
Echoing this sentiment, Professor Matt Padley of Loughborough University points to a post-pandemic shift in priorities, with greater value placed on spending quality time with family and friends outside the home.

The research suggests that a moderate retirement lifestyle should enable monthly dining out experiences and financial contributions towards family needs, like supporting grandchildren’s activities, with a suggested budget of £1,000.

The detailed standards for retirement living include a variety of life’s pleasures and necessities, from weekly grocery budgets to holidays and leisure activities, all tailored to reflect the different tiers of retirement living standards.

Notably, these estimates do not account for housing costs, assuming many retirees have cleared their mortgages or have access to benefits to cover rent.
Calculating the savings required to achieve these retirement income levels involves complex assumptions, considering the myriad of pension options, changing economic conditions, and individual circumstances.

The PLSA and investment platform AJ Bell provide rough estimates for the savings needed, ranging from £40,000 to £790,000, depending on the chosen standard of living and retirement income method, such as annuities or drawdowns.

This discussion comes against the backdrop of the state pension’s triple-lock mechanism, which promises a significant rise to combat increasing living expenses in retirement.

Moreover, the introduction of auto-enrolment into pension schemes represents a pivotal step towards enhancing pension savings, with plans for further expansion.

The financial challenges of retirement planning are further compounded by gender disparities in pension savings.

A joint report by Now Pensions and the Pensions Policy Institute reveals that women, on average, need to work an additional 19 years to accumulate the same pension savings as men.

This analysis serves as a crucial wake-up call for individuals and policymakers alike, underscoring the urgent need for strategic planning and robust support systems to secure a financially stable retirement for all.

If you would like to discuss your retirement planning needs, so we can help you plan for a more comfortable retirement, please do not hesitate to contact us.

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