3 March 2023
At a glance
- The amount individuals and couples need to enjoy a comfortable, moderate or minimum standard of living in retirement has risen by almost 20% in the past year.1
- You may need to rethink your long-term plans, perhaps working for longer or winding down from work over several years to reduce the pressure on your private pension.
- Every situation is unique, but we can explore your options with you and build a plan that will help enable you to enjoy later life.
Whether you’ve got 20 years before you retire or just a few, it’s important to have an idea of just how much money you’ll need for a comfortable standard of living once you’ve finished working.
Helpfully, the Pension and Lifetime Savings Association publishes figures (based on independent research by Loughborough University) to show approximately how much individuals and couples will need to have a comfortable, moderate or minimum standard of living in retirement.
How much money do I need to retire?
For a minimum standard of living (with a weekly food budget of £54 and one week and weekend away in the UK each year), its latest numbers show that a single person now needs £12,800 a year (up by £1,900 since last year), while a couple needs £19,900 (up by £3,200).2
Meanwhile, individuals need £23,300 a year (a £2,500 increase) for a moderate standard of living, while couples need £34,000 (up by £3,800). A moderate standard of living stretches to £74 a week on food, with two weeks in Europe and one long weekend in the UK every year.
For a comfortable standard of living (which includes three weeks in Europe each year and a more generous budget of £144 for food each week), a single person needs £37,300 a year (up by £3,700), while a couple needs £54,500 (an increase of £4,800). All figures are for the UK, excluding London, and you can find out more about the differences between the three bands here.
The increase in the cost of retirement is worrying news, regardless of when you plan to finish working. But whatever stage you’re at on your saving journey, having a specific income in mind can help you focus.
“The numbers created by the Pensions and Lifetime Savings Association do provide a useful benchmark and can start off a conversation around how much capital you’ll need to generate your income,” says Tony Clark, Senior Propositions Manager at St. James’s Place. “But how much you need to live off ultimately comes down to you and how you want to live. What is your vision of a comfortable retirement?”
Why do you need a financial adviser?
Advice can be invaluable here. In addition to looking at your cash flow and helping you work out how much you’ll need to live on, an adviser can help your retirement plans remain on track.
For those who are likely to retire relatively soon, the cost-of-living crisis and the stock-market volatility that has accompanied it will have been a major cause for concern.
“For some people, this will mean rethinking their retirement plans to a degree,” says Tony. “Delaying retirement can be an easy solution, but a more palatable one might be a phased retirement, winding down from work over a period of years, rather than a hard stop.”
Using this approach, you might, for example, be able to reduce the pressure on your private pension and give it more potential to grow further before you need to call on it at all.
But there may also be options that you haven’t considered. “You might be able to use a bonus to top up your pension using salary sacrifice or explore ways to use an employee share scheme,” explains Tony.
Your adviser will also be able to ensure that the risk profile of your investment portfolio (not just your pension) is at the right level for you and that it’s in the best position to serve you into retirement.
For those with more time on their hands, volatility can still be alarming and last year, for the first time, investors took more money out of investment funds than they paid in, according to The Investment Association.3 But cashing in investments often simply crystallises a loss. Talking to us can be helpful in enabling you to hold your nerve and keep a long-term view.
Get in touch
Even if you’re not overly concerned, it’s still worth having a regular check-in with your adviser. We can help you build a retirement plan that will give you a bit more flexibility.
“It’s often helpful to build yourself a portfolio income stream with money coming from state and private pensions, ISAs and savings accounts, earnings and perhaps property” says Tony. “Think of it as giving yourself different income levers to pull at different times.”
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The favourable tax treatment of ISAs may not be maintained in the future and is subject to changes in legislation.
1,2Rising Prices Add Almost 20% to the Cost of Retirement, Pensions and Lifetime Savings Association, January 2023
32022 Ends With a Record Annual Outflow From Retail Funds of £25.7 Billion, The Investment Association, February 2023
SJP Approved 10/02/2023