The Pensions and Lifetime Savings Association (PLSA) has recently conducted research revealing that a couple now needs £43,100 as an annual income in retirement to attain a ‘moderate’ standard of living. This is a significant rise from last year’s stated figure of £34,000, highlighting the increasing financial challenges individuals face in saving for their retirement.
The PLSA research is conducted annually by analysing the spending habits of retirees and assessing the income needed to cover essential costs and maintain a reasonable standard of living. The figure for a ‘moderate’ retirement for a single person was found to be £31,300 – up from £23,300 last year.
The findings show that the current cost of living has increased significantly, making it more difficult to maintain retirement at a reasonable level without a substantial pension pot.
A moderate standard of living factors in costs of around £100 a week on groceries, £60 a week on eating out, running a small second-hand car, and having a week holidaying in Europe as well as an annual long weekend break in the UK.
The PLSA reported that to attain a minimum retirement living standard, a couple would require £22,400 a year in income (£14,400 for a single individual).
For what the PLSA call a ‘comfortable standard’ – which includes spending around £130 per week on groceries and £80 a week on meals out, alongside regular beauty treatments, theatre trips and two weeks’ holiday in Europe a year – a couple would need around £59,000 annually. This standard of living comes in at £43,100 for a single person.
The significant jump in expenses across the board can be attributed to various factors, including rising healthcare costs, increased utility costs, and rising inflation.
It is interesting that it is the ‘moderate’ standard of living that has seen the biggest increase in costs – with the cost of this lifestyle jumping by over 26%.
One of the key factors here, alongside the rising cost of living, is changes in expectations around what an ‘average’ standard of retirement looks like.
Eating out more and spending more time out with loved ones has become more important in later life. Being able to help family members financially is evolving to become an expectation of the future generation of retirees.
Among the issue of rising costs of living and other financial pressures, the increasing longevity of retirees also plays a significant role. With people living longer, there is a greater need to ensure they have sufficient income to cover their later years.
Whilst the increased costs are a concern, there is some comfort to be taken from the government’s triple lock in relation to the State Pension. A couple that both have a full entitlement to the State Pension should be able to attain the minimum standard of retirement at the current time. This stance is of course subject to change, however, and shouldn’t be relied on by future generations.
To tackle the pension savings gap, it is crucial to understand the importance of saving for retirement and taking action throughout your working life. The PLSA recommends that individuals start retirement planning early, ensuring they have a diverse mix of investments. Employers should also be encouraged to provide adequate workplace pensions and support their employees’ retirement planning.
Navigating the complexities of retirement planning can be challenging, especially during times of increasing costs. Therefore, it is advisable to seek professional advice from a financial adviser. Financial advisers can help individuals assess their retirement goals and develop a suitable financial plan. To take a proactive step and put your own retirement planning into effect, please get in touch.