What do you need for a comfortable retirement?

What do you need for a comfortable retirement?  New calculations suggest that a single persons needs a pension pot of £738,000.

The new calculations are based on the PLSA’s Retirement Living Standards research which has just been updated to account for annual inflation, perceptions of what constitutes varying levels of retirement and the new State Pension. The research reveals how much people will now need in retirement to achieve a minimum, moderate or comfortable retirement lifestyle.

Quilter’s new calculations show that in one year the size of a pot needed for a comfortable retirement has grown by nearly £100,000. Furthermore, a couple now needs close to a million (£929,000) in joint pension wealth for them both to achieve a comfortable retirement.

In January 2023, Quilter calculated using the PLSA’s previous set of figures that a pot of £645,000 was needed for a comfortable retirement. This is partly down to inflation and also related to changes to the composition of the basket of goods used for the index.

So what  do you need for a comfortable retirement? Now, a comfortable retirement requires a single person to have an annual income (gross of tax) of £39,387 per year on top of the state pension, which in 2024-25 is £11,500 per year.

According to the association, a comfortable retirement consists of a range of measures including being able to go for a fortnight in a 4* holiday in the Mediterranean every year and three UK long weekends and up to £1,500 a year on new clothing and footwear a year. Also this year measures such as being able to gift £1,000 a year to support family members has been highlighted in the PLSA research.

For someone looking to achieve what is defined as a moderate retirement lifestyle, a single person will need to build up a pension pot of approximately £459,000 up from £301,000 compared to last year’s calculations. A moderate lifestyle includes being able to afford £74 a week on food (including food away from the home) as well as two weeks in Europe and a long weekend in the UK every year. Gifting £1,000 to family was also highlighted as a necessity among retirees aiming for a moderate retirement.

Finally, for someone looking to achieve a minimum lifestyle which requires someone to have £3,357 in extra income per year on top of the State Pension they need to have built up a pot of around £63,000. A minimum lifestyle enables someone to spend £50 on a weekly food shop, a week long holiday a year and no car.

What do you need for a comfortable retirement? If you are concerned about any of these calculations and your pension pot, please get in touch.

*Calculations assume an escalating income of 3% based on someone who is aged 66 (which is the current age to receive state pension). All pots rounded to the nearest thousand. For the singles an annuity rate of 5.34% was used. For the Joints it was 4.79%.

** Minimum for a couple is covered by the State Pension

Dreaming about the retirement you want is one thing, but it can be difficult 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. Can you afford to retire?

Setting standards
The Pensions and Lifetime Savings Association (PLSA) developed its Retirement Living Standards4 to help people envisage different lifestyles in retirement, based on the costs of common goods and services. The cost of a Minimum lifestyle for a single person increased from £10,900 in 2021 to £12,800 in 2022, a rise of 18%. For a couple, income of £16,700 required in 2021 rose to £19,900 (19% 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 so can you afford to retire?

Dreaming of more than the minimum?
At the Comfortable Retirement Living Standard, retirees can expect more luxuries like regular beauty treatments, three weeks holiday in Europe each year and theatre trips. The weekly food shop for a couple in this lifestyle amounts to £238 per week.

What savings do I need?
For a comfortable retirement PLSA estimate 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.

Your retirement, your choice
If you’re concerned about how to fund the retirement you want, we can help you prepare financially. Can you afford to retire? 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.

PLSA, 2023

Source: Quilter Essentially Wealth, Q2 2023

Analysis3 has revealed that stopping or reducing  pension contributions, even for a relatively short time such as a year, can have a significant impact on your final pension pot, with savers potentially being thousands of pounds less well off in retirement. In short, pausing pensions could be costly.

Choosing how to cut back
Almost all (93%) of those who responded to the analysts’ survey said they are feeling the impact of increasing costs and inflation. A further 77% expect to have to make cutbacks on saving or spending. However, an encouragingly low figure of 6% said they planned to reduce their pension contributions.

Thinking of the long term
Whilst it might seem tempting to give up or pause your pension contributions, it’s important to consider the impact any breaks in contributions would have on your retirement pot.

Keeping your long-term plans in mind and maintaining your savings habit wherever possible will help to keep your retirement planning on track. Talk to us before making any major decisions as pausing pensions could be costly.

According to a recent survey by the Pensions and Lifetime Savings Association (PLSA 2021)*

  • 51% of people focus on their current needs and wants at the expense of providing for the future;
  • Only 23% of people are confident they know how much they need to save to be comfortable in retirement.

We can help you build up the funds you’ll need to enjoy your retirement years to the full. We can give retirement income & pension planning advice on personal pensions, getting the most suitable annuity rates, stakeholder pensions, self invested personal pensions (SIPPs), small self-administered schemes and equity release.

3 Standard Life, 2022