Warning: the State Pension will not cover your living expenses in retirement

Harvey Jones says you’re heading for a £3,000-a-year shortfall in retirement if you plan to live off the State Pension alone.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

State shortfall

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.

Big problem

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.

Stocks are best

At Motley Fool, we believe stocks and shares are the best ways to build your long-term savings. You could either create your own portfolio of individual stocks, or keep things simple by investing in a handful of tracker funds or investment trusts.

If you’re pondering your next step, these three rules from the UK’s most popular fund manager could help you beat the stock market and even make a million.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »