Retirement isn’t cheap. Even if you only want to cover the basics, with a bit of money left over for the odd treat, you’ll need to build your own savings pot. Quite simply, the State Pension isn’t going to cover it.
The average cost of retirement is now £11,830 a year, new figures show, which is a third higher than the new State Pension will pay. That’s worth just £8,767.20 a year, and only if you qualify for the full amount. This leaves a shortfall of more than £3,000 you’ll have to make up from your own resources.
For those who retired before 6 April 2016 and get the old basic State Pension, the shortfall is more than £5,000 as they only receive a maximum of £6,718.
These figures, calculated by over-55s specialist adviser Key and based on official statistics, may be even more shocking if you live in the one of the more expensive regions.
The average retirement costs £14,270 in the South-East, two thirds higher than the State Pension, with the South-West costing £13,120, and London costing £13,060.
You need more money
These figures only cover everyday living expenses, such as food, clothes and utilities, plus a bit extra for eating out and entertainment. They don’t cover one-off emergency costs, such as a boiler breakdown, car repairs, or repairing a leaky roof.
If you want more from retirement, such as a foreign holiday once or twice year, you’ll need a lot more than £11,830 a year. Especially if you still owe money on a mortgage, credit cards, or rental payment on your home. The problem will become even more acute if the State Pension comes under renewed attack by cost-cutting governments, as looks increasingly likely to happen.
Save, save, save
There’s only one surefire way of make up the shortfall and that’s to save under your own steam. If you’re lucky enough to have a company pension, resist any temptation to opt out as this means turning down free money in the shape of employer contributions and tax relief.
You should also consider saving in a personal pension as you can claim tax relief on your contributions. Alternatively, take out a Stocks and Shares ISA, which allows you to take all your income and capital growth free of tax.
Saving isn’t easy these days, with wages squeezed and living costs growing. But unless you get down to it, you’ll regret it later. Just ask any pensioner who’s trying to make the best of it on £11,830 a year, or failing that, £8,767.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.