In an era where life expectancy is increasing, the importance of retirement planning cannot be overstated.
The Office for National Statistics reveals that a man who reached 65 in 2020 can anticipate a lifespan close to 85, while a woman in the same position can expect to live until around 87.
Considering that the state pension age will reach 67 by 2028 and many retire earlier, most people will enjoy a retirement period spanning at least two decades. Surprisingly, a relatively small number of individuals have made adequate preparations to financially support themselves during retirement.
Falling short
A 2018 article published by FT Adviser highlighted that 35% of individuals in the UK lacked a pension altogether. Among those with a pension, 36% were unaware of the amount of money accumulated in their pension pot.
More alarmingly, 43% of people confessed to not knowing how much they will need for a comfortable retirement, leading to a significant portion of the population falling far short of the recommended pension amount.
The cost of retirement
Determining the appropriate savings for retirement isn’t straightforward. Several factors, not all within our control, influence the calculations. Nevertheless, it is always a good idea to assess the amount of money needed for retirement so that you can make a plan to get there.
The amount you should contribute to your pension depends on the lifestyle you want in retirement.
The Retirement Living Standards (TRLS), developed by the Pensions and Lifetime Savings Association in collaboration with Loughborough University, offer valuable insights into the income required annually to sustain three distinct lifestyles:
- Minimum: enough to cover your needs with some disposable income left over
- Moderate: what you need for extra financial security and flexibility
- Comfortable: to give you a lot of financial freedom and some luxuries
The table below presents the recommended annual income for each lifestyle:
| SINGLE | COUPLE |
Minimum | £12,800 (London: £14,300) | £19,900 (London: £22,400) |
Moderate | £23,300 (London £28,300) | £34,000 (London: £41,400) |
Comfortable | £37,300 (London: £40,900) | £54,500 (London: £56,500) |
How are these retirement costs determined?
While these estimates are useful benchmarks, it’s important to understand that they are based on some assumptions:
- You will have no housing costs by retirement
- They don’t include social care expenses, or the financial responsibility of supporting dependents (if applicable)
- If you choose to downsize, you could release capital that can contribute to your retirement income
However, the TRLS costs provide a helpful framework for understanding the income levels required for various lifestyles. They include expenses such as:
- Household bills
- Food
- Transport
- Holidays and leisure activities
- Clothing
- Personal care
For example, a “minimum” lifestyle would allow for a week-long holiday and a weekend getaway in the UK each year, to renovate one room annually, and a weekly food budget of £54.
On a “comfortable” lifestyle could spend three weeks in Europe annually, renovate your kitchen and bathroom every 10-15 years, have a weekly food budget of £144, and own a two-year-old car that can be replaced every five years.
Retirement planning advice and guidance
Seeking assistance with your retirement planning can help you understand the lifestyle you desire during your retirement years and develop a viable strategy to achieve it.
There are numerous variables that are unique to your circumstances, which can be complex when you also need to account for the succession of your farm. While pension calculators offer insights into your projected retirement situation, they cannot replace personalised advice from a qualified advisor with extensive experience and access to tools such as cashflow modelling.
If you would like assistance in planning for your retirement, your AF Insurance team is here to help. To find out more, email us or call 01603 967 967.
AF Group have partnered with local Independent Financial Planners, Alan Boswell & Company Ltd, to provide this service. The figures shown are correct as of July 2023. Please note, the value of investments and any income from them can go down as well as up and you might not get back the original amount invested. The past is not a guide to the future.
None of the information in this article represents a recommendation about the income you may receive in retirement.
