IF you want a comfortable retirement you need to save enough to generate an income of £33,000 a year, according to new research.
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This would give someone a lifestyle with a £56 weekly food budget, £1,000 a year to spend on clothes and three week long holidays in Europe annually.
The new research, which was carried out by the Pensions and Lifetime Association, is designed to help people imagine the kind of lifestyle they would like after they retire, and understand how much they need to save to achieve it.
It looks at how much income you need for a minimum, moderate or comfortable lifestyle and explains what you can afford to buy at each level.
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Minimum retirement lifestyle
How much annual income do I need?
- For a single person outside of London – £10,200
- For a single person in London – £12,200
- For a cohabiting couple outside of London – £15,700
- For a cohabiting couple in London – £19,200
What do I get?
The minimum lifestyle covers all your needs plus enough for some fun activities.
For example, you could holiday in the UK, eat out about once a month and do some affordable leisure activities.
Unfortunately, you’d be unlikely to be able to afford a car and your weekly food and drink budget would be limited to
How much do I need to save into my pension?
The good news is that the full state pension is £8,767.20 per year, which is the bulk of the cash you need.
A single person who qualified for the full amount would only need to save enough to provide an extra £1432.80 each year.
On average, you’d need savings of around £30,000 on top of your state pension to generate enough income.
If you are auto-enrolled into a workplace pension, this level should be fairly easy to achieve.
Top tips to boost your pension pot
DON’T know where to start? Here are some tips from Aviva on how to get going.
- Understand where you start: Before you consider your plans for tomorrow, you’ll need to understand where you stand today. Look into your current pension savings and policy and research when you’ll be eligible for the state pension, and how much support you’ll receive.
- Take advantage of your workplace pension: All employers are legally required to provide a workplace pension. If you save, your employer will usually have to contribute too.
- Track down your pensions: If you’ve moved jobs a lot, this means you’ll have several pension pots. It can be hard to keep track of them all, but the government offers a free pension tracing service to help you.
- Take advantage of online planning tools: Aviva and Royal London have tools that give you an idea of what your retirement income will be, based on how much you’re saving.
- Find out if your workplace offers advice: Many employers offer sessions with financial advisers to help you plan for your future retirement.
Moderate retirement lifestyle
How much annual income do I need?
- For a single person outside of London – £20,200
- For a single person in London – £24,400
- For a cohabiting couple outside of London – £29,100
- For a cohabiting couple in London – £33,100
What do I get?
The moderate lifestyle gives you more financial security and more flexibility.
For example, you could have a two-week holiday in Europe and eat out a few times a month.
Savers would have the opportunity to do more of the things they want to do.
How much do I need to save in my pension?
It varies from person to person, and will depend on whether you keep some of your money invested once you retire.
A single person who qualified for the full state pension would need to have enough saved to provide an income of £11,482.80 each year.
That equates to a pension pot of around £229,648, if you bought an annuity. You’d need less if you used income drawdown.
Am I on track for a comfortable pension?
IF you are only putting in the minimum amount for your workplace pension then you are not saving enough for a comfortable pension..
The earlier you start saving, the less you’ll need to put away each month. Here’s how much you’ll need according to consumer group Which?
- Which? reckons that you need to be saving £131 into your pension a month from age 20 to be able to have a comfortable pension.
- Anyone over 30 would have to save up to £198 a month.
- If you start savings at age 50 you need to be saving a staggering £633 a month to be able to have a £26,000 a year income when you retire.
- These figures assume that your employer pays his or her part of your pension contributions.
- You will also receive a state pension depending on how much national insurance you have paid over your working life; the maximum amount you can receive is £164.35 a week.
Comfortable retirement lifestyle
How much annual income do I need?
- For a single person outside of London – £33,000
- For a single person in London – £36,000
- For a cohabiting couple outside of London – £47,500
- For a cohabiting couple in London – £49,500
What do I get?
Pensioners who have saved enough for a comfortable retirement could enjoy some luxuries like regular beauty treatments, theatre trips and three weeks in Europe a year.
They could also afford a weekly food shop of £65 and could spend up to £150 a month on clothes and shoes.
They’re also the only group that can afford proper home improvements with a kitchen or bathroom replacement every 10 or 15 years.
How much do I need to save in my pension?
Even if you qualify for the full state pension, you’ll still need to find over £24,000 in savings every year to reach a comfortable retirement level.
If you’re buying an annuity, this means building up a pension pot of £484,656.
If you choose to keep your money invested once you retire, drawing some each year – you’ll need a bit less.
Guy Opperman, minister for pensions and financial Inclusion, said: “It’s great to see what the PLSA has developed which has the potential to help savers think about the future and plan for the retirement they want.”
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And finally, here’s how to boost your state pension by up to £250 a year.
