The Cost of Retiring

The thought of retired life can be an intimidating idea. It is a daunting task to consider your life and your finances post-employment. Nevertheless, it is critical to stay on top of your pension planning and adequately inform yourself to avoid hiccups and trouble further down the line.

One of the big considerations that arise when discussing pension planning is the cost of retirement. The Retirement Living Standards, by the PLSA, based on independent research by Loughborough University, offer a picture of your possible future lifestyle during retirement.

How expensive is retirement?

According to the Retirement Living Standards, for a single person, the average annual cost for a ‘minimum lifestyle’ as of 2023/24 is £12,800. This could cover most people’s basic needs, as well as some luxuries, for example, eating out once a month, a holiday in the UK and circa £500 for clothing and shoes per year.

A ‘moderate lifestyle’ would cost a single person £23,300 annually, allowing for more flexibility and financial security as well as affording more comforts such as a single car per household and a holiday abroad.

A ‘comfortable lifestyle’ would, for a single person, come to £37,300 a year. This allows for pleasures such as eating out once a week, two holidays abroad a year and regular beauty treatments.

For couples these prices go up to £19,900 – £34,000 – £54,500 for a minimum, moderate and comfortable lifestyle respectively.

Other costs may need to be added as well such as rents and mortgages, social care costs as well as pension taxes.

How affordable is this?

The current state pension is £9,627.80 as of 2022/23. This goes a long way towards the overall pension pot, however according to the PLSA, to achieve the ‘comfortable’ level of retirement, you would need to accumulate a pension pot worth £590,000.

The average person’s pension pot, however, after saving through their life only stands at £55,900 and around 70% of 35–54-year-old self-employed savers have less than £25,000 saved in their pensions.

Nevertheless, by combining the full state pension and workplace pension, the ‘minimum’ standard is achievable, with around three-quarters of employees expected the reach this level. 

What next?

Retirement planning is very important, and the earlier you start, the better off you will be in the future.

One perspective is to consider how much you want to have at the point of retirement. To maintain your current lifestyle, you will want to have saved around 3 times your earnings by your 30s, 6 times by your 50s and 8 times your earnings by your 60s.

Alternatively, you can consider what percentage of your earnings to put away looking to steadily increase the cut for your pension as you progress in life, possibly, 10% in your 20s, 20% in your 40s, 25% in your 50s etc.

Fundamentally, however, making sure you are educated on retirement planning is the most crucial first step. According to the PLSA, around 77% of savers don’t know how much they will need in retirement and according to the UK Financial Capability Survey in 2015, 51% of people primarily focus on the current situation at the expense of their future.

As such, properly informing yourself is the crucial first step.

Talk to one of our expert financial advisors today, to discuss your pension planning and achieving your ideal retirement outlook.

*This content of this blog does not constitute financial advice, and when investing your capital is at risk