According to a recent survey conducted by Which?, individuals targeting a ‘luxury’ retirement are likely to spend £33,000 a year when they stop working. Those aiming for a ‘comfortable’ retirement will probably spend about £20,000 a year.
If you are living as a couple, we can assume your spending will be lower, at just £42,000 a year per household for a ‘luxury’ retirement and £27,000 for a ‘comfortable’ one. That works out at £21,000 each for luxury and £13,500 each for financial comfort in retirement.
The new State Pension will leave you short
Of course, your idea of what is comfortable or luxurious will not be the same as everyone else’s. On top of that, everyone has a different set of circumstances. Some homes cost more to live in than others, for example. Some people pay rent or a mortgage and some don’t. Some cars use more fuel than others, some diets cost more than others, some areas are more expensive than others and so on.
However, I reckon the Which? figures are a good rough guide to what we should all be aiming for as a minimum when it comes to retirement income.
Your New State Pension will fund some of it. The maximum you’ll get as things stand now is around £8,767 per year. That shows that if you live alone and rely just on the new State Pension, you’ll be about £11,233 short of the £20,000 annual income needed for a comfortable retirement. If you live as a couple and both get the New State Pension, you’ll be £9,466 short of the combined £27,000 you’ll need every year.
It’s worth noting that you may not get the full New State Pension because it depends on your record of National Insurance payments. Periods of part-time working, caring, or other absences from the labour market could have led to an incomplete record. This could be a bigger problem than you think because according to Which? “Government estimates show that only around half of those retiring over the next year will qualify for the full State Pension.” Indeed, we can only hope the situation improves going forward.
Decisive action is needed right away
It’s fair to say that this article is full of guesses and estimates, but I reckon it’s clear that those of us who will retire in the decades to come need to take decisive action right away. We need to build up our own pension pots of money so that we can add to whatever New State Pension we end up getting in retirement.
Workplace pension schemes are good vehicles for retirement saving because they offer tax advantages as well as extra top-up contributions from your employer. But if you can’t get into one of those, Self-Invested Personal Pensions and Stocks and Shares ISAs also provide substantial tax advantages. And here at the Motley Fool, we firmly believe that your best shot at building a substantial retirement pot is to invest in shares and share-backed investments within your SIPP, ISA or other tax-free ‘wrapper’.
Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".
The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.
Kevin Godbold has no position in any share 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.