If you are nearing retirement, there’s a good chance you’ve thought about how much money you’ll need to retire comfortably. You might have done some research on this, and perhaps even come up with a specific figure. But what does the typical Brit nearing retirement consider to be the ideal annual retirement income?
We now have the answer, thanks to a new study by Canada Life.
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What do British pre-retirees see as the ideal retirement income?
According to Canada Life, over-55s with defined contribution pensions who plan to buy an annuity see £22,500 as their ideal retirement income.
This amount of income equates to a ‘moderate living standard’ according to the PLSA retirement living standards. The latter is a guide that illustrates the type of lifestyle you can expect based on your retirement income.
For example, a ‘moderate living standard’ means that you can afford to run a used car, go on one foreign holiday every year, and eat out a couple of times a month.
According to Nick Flynn, retirement income director at Canada Life, in order to achieve an annual income of around £22,500, your personal pension or other savings would need to generate an income of around £13,161 per year (that is, if you will also receive a full State Pension, which is currently about £9,339 a year).
What else did the research reveal?
When it comes to ideal retirement income, Canada Life’s research found little difference between the sexes. However, there was a significant difference in ideal retirement income between those with larger pensions and those with smaller ones.
For example, the average ideal retirement income for those with pension pots under £200,000 was £20,000. The figure increased to £28,300 for those with pensions worth more than £200,000.
Furthermore, the study discovered that pension values have a significant impact on people’s optimism towards their retirement living standards.
For instance, pre-retirees with pensions valued at over £200,000 said they thought their living standards would be better in retirement compared to only 8% of those with pensions worth less than £200,000.
Additionally, fewer of those with pensions worth over £200,000 thought their living standards would fall in retirement compared to those with pensions worth less than £200,000 (26% vs 40%).
Also, twice as many men as women think their standard of living will improve in retirement (12% vs 6%). On the other hand, more women than men are fearful of a fall in their retirement living standards (38% vs 34%).
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How can you achieve your ideal retirement income?
Are you nearing retirement and wondering how to achieve the retirement income you want?
Here are three top ways that can help you do that.
1. Pay more into your pension
Paying in more to your defined contribution pension, whether it’s the one offered through your workplace or a private pension you’ve opened yourself, is one of the simplest ways to boost your pension.
You might pay in more when you get a pay rise, when you land a windfall or when another expense, such as a loan you’ve been repaying comes to an end. By paying in more, you will be building a bigger pot. This will lead to a bigger income when you retire.
Furthermore, contributing more to your pension scheme will boost it immediately in the form of tax relief.
In the case of a workplace pension, some employers will also usually match the contribution you pay (up to a certain amount). So, if you pay more, they will also pay more, boosting your pot even further.
2. Maximise your State Pension
If you expect your State Pension to form a significant part of your retirement income, it might be worth getting a State Pension forecast. Apart from learning how much your State Pension could be, you can also find out how to increase the amount.
For instance, if you have gaps in your National Insurance record, you may be able to pay Class 3 Voluntary National Insurance contributions to boost what you can get.
These cost a lump sum of around £800 but can add more than £250 to your State Pension each year.
3. Consider postponing your retirement
If you are still fit and healthy and believe you can give more years to work, postponing your retirement and thus putting off breaking into your pot can do wonders for it.
The longer you leave your pension untouched, the more time it has to grow. And even if it doesn’t grow by much, the longer you keep working and therefore bringing in income, the smaller the pot needs to be when you finally quit work.
