The Pensions and Lifetime Savings Association has just confirmed what we’ve all been thinking – that because of the pandemic, things are going to cost more when it comes to retirement. A new report from the association shows that couples who want to achieve a comfortable living standard in their retirement are going to have to pay £2,200 extra a year.
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The cost of retirement is climbing higher
It’s hard to dodge all the headlines telling us that the cost of living is increasing. Surging energy prices and rising taxes have meant that everyday expenses are on the up.
But spending habits have also changed in the past couple of years. Retirees want more money for eating out, a higher personal grooming budget and, of course, the all-important Netflix subscription!
So how much more money do we need? The PLSA breaks its retirement standards of living into three levels: minimum, moderate and comfortable. Here’s the breakdown of the PLSA’s suggested annual budget adjustments in 2021.
Minimum Retirement Living Standard
This standard of living includes a week’s holiday in the UK, eating out about once a month and some reasonably priced leisure activities.
The budget for a single person has risen by £700 since 2019 to £10,900. For a couple, it’s increased by £1,000 to £16,700.
Moderate Retirement Living Standard
This is one layer up, adding in a little more financial security and flexibility. So think of a two-week holiday in Europe and eating out a few times a month.
To achieve this, a single person is looking at an annual budget of £20,800 (up £600 from 2019) and a couple will need £30,600 (up £1,500).
Comfortable Retirement Living Standard
This is where those little luxuries like regular beauty treatments and theatre trips come into play. But this living standard also sees the largest jump in costs for a couple.
A single person will need to budget an extra £600 for an annual income of £33,600. However, a couple is looking at £2,200 more at £49,700.
Planning for the future
It can be tempting to push thoughts of your pension to one side, especially if you have other more pressing demands on your money.
But starting early and making a plan for your retirement savings could make a big difference later on in life. So it is important to think about what standard of living you want to achieve when you finally stop work.
Here are some key things to think about:
- State Pension: First things first, it’s helpful to find out how much State Pension you are entitled to. You can get an estimate using the calculator on the gov.uk website.
- Pension pots: It’s hard to get a handle on your retirement savings if you don’t know how much you already have. So it could be a good idea to check your pension pots and see what growth trajectory they are on.
- Plan ahead: Think about how much money you are realistically going to want in retirement. This means you need to think about when you want to retire and how much you want to live on each year.
If you don’t really know where to start, then talking to an independent financial adviser can help.
Unbiased is an online directory that looks to match you with a financial adviser in your area. An adviser can let you know whether you need to make changes to your pension plan in order to achieve the standard of living that you want in retirement.