A COUPLE hoping to retire and take up to three holidays in Europe each year must have a joint income of £54,500.
Single retirees must bring in more than half that, with £37,300 a year needed to achieve the same standard of living.
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The Pensions & Lifetime Savings Association regularly looks how much you’d need to have coming in each year to afford different levels of comfort after you retire.
They count all household bills, groceries and eating out, travel costs and owning a car, holidays, TV subscriptions such as Netflix, clothes, beauty treatments and even money spent on giving birthday presents.
And with the soaring cost of living, the amount of money needed to fund retirement has shot up.
In 2019 when the PLSA records began, a single retiree was spending around £620 a week to cover basic needs plus the “nice to haves”.
That included all household costs, three weeks away in Europe each year, £144 a week to spend on food and meals out and the money to replace a two-year old car every five years.
In 2022, the same lifestyle cost £716 a week, totting up to £37,300 a year.
For couples wanting to live to the same standard it took a £54,500 income last year, compared to about £47,500 three years earlier.
But to generate that kind of income takes a huge pension pot.
The PLSA calculated that you would have needed £328,000 saved into your pension in 2022 to have a hope of affording a comfortable retirement.
That’s almost 10 times more than the average UK pot size of £37,600 for people age 55.
Becky O’Connor, public affairs director at Pensionbee, said: “The cost of living crisis has pushed the bar even higher for the size of pension people need to achieve an acceptable living standard in retirement.
“But they set a benchmark for living standards in retirement now, not for what today’s younger workers will need in the future, after decades more inflation.”
How much money do I need to retire?
The PLSA updates their Retirement Living Standards each year, to take account of the rising cost of living.
They’re designed to help savers work out how much cash they’ll need when they stop working.
They don’t count mortgage payments or rent or any financial support you give your children or other dependants.
If you think you’ll still have those costs to meet when you retire, you’ll need to up your savings considerably.
The ‘minimum’ retirement
The PLSA’s minimum retirement living standard covers all of a retiree’s basic needs as well having some money left over for fun.
It includes a week’s staycation each year, eating out once a month, and some affordable leisure activities twice a week – but no car.
The PLSA says to afford this retirement you would need an annual budget of £12,800 as a single person, and £19,900 as a couple.
That might sound intimidating but it’s important to remember that the state pension will make up part of that income.
Retirees can start to claim the state pension at 66, though if you’re retiring after 2026 you’ll almost definitely see that minimum age rise.
The government honoured its promise to boost the state pension in line with inflation from April.
Those claiming the full flat rate state pension now receive £203.85 a week, equal to £10,600 a year.
Not everyone qualifies for the full amount.
If you have any gaps in your career, you may have paid less national insurance and would receive a smaller state pension to reflect that.
You can top up your national insurance contributions though.
The ‘moderate’ retirement
For a slightly more extravagant retirement, an individual will need an income of £23,300 a year, or £34,000 for a couple.
The moderate retirement living standard includes a two week holiday in Europe each year and eating out a few times a month.
Around half of single employees are estimated to be on track to achieve a minimum or moderate retirement, with couples more likely to be at the top end of this range.
The ‘comfortable’ retirement
To live comfortably in retirement, the PLSA said an individual would need an income of £37,300 a year, and a couple would need £54,500 between them.
This includes a three week holiday, plenty of money to spend on clothing and more money to spend on social activities such as birthdays.
How much do you need to save?
Even to live at the minimum standard, you’ll need to save extra into your pension.
The state pension is nearly £2,000 less than you need a year, so topping up your contributions to your workplace scheme is a good idea.
Alice Guy, personal finance editor at interactive investor, said: “To achieve a comfortable retirement, a couple need to supplemesnt the state pension with a private pension pot worth £328,000 each.
“This seems like a huge amount but it’s important to remember how much regular amounts add up over time.
“Someone would need to save roughly £215 per month for 40 years to achieve a pension pot worth £328,000.
“If they invested through a workplace pension, this contribution would only cost them £107 per month after tax, as it would be topped up by tax relief of £27 and an employer’s contributions of £81.”
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How to save for retirement
Anyone planning their retirement needs to do some careful calculations about how much they will need to afford the lifestyle they want.
A good starting point is the Government state pension age calculator, which will tell you at what age you will receive your state pension.
Pension calculators can also help you work out how much money you need to be saving to have the pension pot you want at retirement.
The earlier you start saving, the easier it is as your money has longer to grow.
And you’re not on your own when it comes to saving for retirement.
Your workplace will almost certainly contribute some money to your pension pot too, and you get tax relief from the government which reduces the amount you have to pay in yourself.
