The amount of money required to retire at a minimum living standard has seen a surge.
The cost of living crisis is rapidly morphing into a retirement crisis. An escalating increase in food and energy prices means that the amount required to retire at a minimum living standard has seen a surge of nearly £2,000 in just the last year.
According to a 2022 study funded by the Pensions and Lifetime Savings Association (PLSA) at Loughborough University, the minimum amount needed for a single pensioner to get by increased by 18% to £12,800 a year. Retired couples now need a minimum of £19,900 annually, an even more significant rise of 19%.
While the full new state pension has risen from £9,627 a year to £10,600 this month, research suggests that millions will fall short in covering their day-to-day living costs in retirement. However, there are steps you can take now, even in your 50s, to prevent poverty in retirement.
The true cost of retirement
Researchers at Loughborough’s Centre for Research in Social Policy have established “retirement living standards” that serve as an industry benchmark for what pensioners need in retirement. They suggest that the minimum income standard for a single person currently stands at £12,800, or £19,900 for a couple.
These figures are consistent with the Joseph Rowntree Foundation’s minimum income standard and reflect public opinion on what is required for survival and a dignified life, including social and cultural participation.
However, these minimum figures are far from lavish, leaving a pensioner with only £54 a week for food, no car, enough money for a short UK break every year, and £580 a year for clothing and footwear. This assumes that the individual works until 67 and has a full national insurance record. Crucially, these figures also assume that you have paid off your mortgage.
Aspirations for a moderate or comfortable lifestyle
A moderate lifestyle in retirement would entail £74 a week on food, a secondhand car replaced every decade, a two-week annual holiday in Europe, and £791 for clothing and footwear. This translates to £23,300 a year for a single pensioner and £34,000 a year for a couple (£41,400 if you live in London).
If you aspire to a more luxurious lifestyle, Loughborough and the PLSA estimate that you will need £37,300 a year as a single person or £54,500 a year as a couple. If you live in London, these figures rise to £40,900 and £56,500 respectively. However, these figures cater to a high-end retirement market, assuming our fortunate pensioner enjoys three weeks of European holidays a year, spends £1,500 on clothing annually, and £144 a week on food while also owning a fairly nice car.
How many Britons are meeting these standards?
Unsurprisingly, relatively few pensioners fall within the £50,000-a-year bracket. The researchers at Loughborough estimate that only 72% of the total population are on track to reach at least the minimum standard of living in retirement. About a fifth of the population are projected to hit the moderate income level in retirement, while 8% will be in the comfortable bracket. However, these figures predate last year’s significant rise in inflation.
How much do you need to save?
If the thought of living on little more than £1,000 a month in retirement alarms you, the only solution is to save more before you stop working. But how much do you need to save?
According to the Loughborough University and PLSA researchers, an individual or couple would need to save between zero to £530,000 to reach the respective minimum, moderate, and comfortable brackets if they retire at age 67, even if they have the full new state pension.
The good news is that if a couple both receive the full £10,600 state pension, that’s just over the £19,900 needed for a minimum income in retirement. The bad news is that a single person seeking a comfortable retirement needs to save an eye-watering £500,000 by the age of 67 while paying off the mortgage or rent and coping with the soaring cost of living.
Pensions in numbers
As of April 2021, 20 million eligible employees are enrolled in a workplace pension scheme in Great Britain, according to Department for Work and Pensions (DWP) statistics. A full-time male median wage employee who begins saving at 18 is expected to save £114,000 into their workplace pension by the age of 68 under current automatic enrolment minimum contributions. It is £93,000 for the equivalent female worker due to lower median earnings.
For individuals actively contributing to a workplace-defined contribution pension scheme, their median pot size ranges between £1,000 for those aged 16-24 and £18,000 for those aged 65-plus. For all active occupational pension schemes, including defined benefit ones, the range is between £2,200 for those aged 16-24 and £62,400 for those aged 55-64.
In conclusion, the rising cost of living paints a challenging picture for future retirees. Early planning, disciplined saving, and financial advice are crucial in navigating a comfortable retirement.
Do your retirement plans align with your aspirations?
Preparing for retirement doesn’t have to be a daunting task. With GSB Capital, you’re not alone in this journey. We’re here to guide you every step of the way, presenting you with various options, helping you calculate your savings needs, and crafting a plan that aligns with your aspirations. It’s never too early or late to start planning for your golden years.
Act now and secure your future. For more information, contact us at GSB Capital today, and let’s turn your retirement dreams into reality. Your future self will thank you.
THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN. YOUR EVENTUAL INCOME MAY DEPEND ON THE SIZE OF THE FUND AT RETIREMENT, FUTURE INTEREST RATES AND TAX LEGISLATION.
THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED.
THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.