Knowing how much money you’ll need in retirement is a difficult topic to address because the answer is different for everyone. We each have different circumstances we’re dealing with and expectations about what retirement will look like, but everyone can plan how much they’ll need and put the work into saving and investing to get there. To get a better idea of how much retirement could cost you, read on.
This does not constitute advice and advice should be sought in all instances before acting on it. The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Knowing how much money you’ll need in retirement is a difficult topic to address because the answer is different for everyone. We each have different circumstances we’re dealing with and expectations about what retirement will look like, but everyone can plan how much they’ll need and put the work into saving and investing to get there. To get a better idea of how much retirement could cost you, read on.
The best place to start is to figure out what you want your life in retirement to look like. This might seem obvious, but picturing what your daily life will look like when you stop working is crucial to retirement planning. Will you still need to maintain the same standard of living as while you were working? Will you take more holidays? Visit family and friends more?
New research has put some surprising numbers on the income needed in retirement
Each year since 2019, the Pensions and Lifetime Savings Association (PLSA) has set about answering the question of how much retirement costs for couples and single retirees. It considers three different Retirement Living Standards, which are summarised as:
- Minimum: covers all your needs with some disposable income.
- Moderate: more financial security and flexibility.
- Comfortable: more financial freedom and some luxuries.
To give a more granular idea of what the different standards imply, these are how two sub-categories break down for food and drink, holidays and leisure:
For the first time since 2019, the Moderate and Comfortable standards have been ‘rebased’ to allow for changed spending patterns. For example, out went two cars for the Comfortable standard and in came much higher spending on clothes in the Moderate standard. The rebasing means the gap between the 2023- and 2022-income requirements reflects more than just inflation – leading to the 34% jump for the Moderate single income requirement.
The bottom-line costs shown in the graph below are net (after-tax) income requirements and take no account of any rental expenditure. As a reminder, from April 2024 the new State pension will be £11,502 a year.
Source: PLSA
Need help planning for retirement?
If you’re not sure where to start when it comes to retirement planning or if you need assistance reviewing your current plan because of the new estimates, we’re here to help. Contact an expert financial adviser from Dental & Medical Financial Services to get started today.