What you need for a comfortable retirement has changed

Rising inflation and costs mean the amount of money you need to enjoy later life has risen significantly.

The recent inflation update from the Pensions and Lifetime Savings Association’s (PLSA) Retirement Living Standards shows that retirees trying to achieve a basic standard of living will have seen their expenditure increase over the last year by almost 20%, due to rising prices. This means you may need to rethink your long-term retirement plans. It may involve working for longer or opting for a phased retirement by winding down over several years, to help sustain and build your private pension.

What do you need to retire?

The PLSA regularly publishes figures to give an indication of how much individuals and couples may need to have a comfortable, moderate, or minimum standard of living in retirement.

For a minimum standard of living (based on a weekly food budget of £54 plus one week and weekend away in the UK each year), its latest numbers show that a single person now needs £12,800 a year (up by £1,900 since last year), while a couple needs £19,900 (up by £3,200).

Meanwhile, individuals need £23,300 a year (a £2,500 increase) for a moderate standard of living, while couples need £34,000 (up by £3,800). A moderate standard of living allows £74 a week on food, with two weeks in Europe and one long weekend in the UK every year.

For a comfortable standard of living (which includes three weeks in Europe each year and a more generous budget of £144 for food each week), a single person needs £37,300 a year (up by £3,700), while a couple needs £54,500 (an increase of £4,800). All figures are for the UK, excluding London.

The increase in the cost of retirement is obviously a concern, whenever you plan to stop working. However, having a target income in mind can help you focus, however close to retirement you are.

The PLSA figures provide a useful benchmark and are a good guide to prompt you to think about how much capital you will need to generate your retirement income. However, everyone’s situation is unique, so how much you need to live off will depend on you and your vision of a comfortable retirement. Check out here to see how the PLSA has drawn up the differences between the three bands, and how they could relate to you.

Should you get financial advice?

Everyone’s situation and personal circumstances are different, but we can review your options and help you build a retirement plan aimed at providing you with an income commensurate with your retirement needs and aspirations.

Whether you’re approaching retirement or have still got many years to go, it’s important to have an idea of just how much money you’ll need for a comfortable standard of living once you’ve finished working.

This is where financial advice comes in. As well as looking at your cash flow and helping to work out how much you will need to live on, your financial adviser can work with you to ensure your retirement plans remain on track.

Obviously, for those looking to retire relatively soon, the cost-of-living crisis and the current stock-market volatility are major causes for concern. Some may therefore wish to delay retirement, or at least opt for a phased retirement, gradually winding down over a period of years. This could reduce the pressure on your private pension and give it more potential to grow further before you need to call on it.

There are also other options to consider, such as using a bonus to top up your pension, using salary sacrifice or exploring ways to use an employee share scheme.

The latest budget also offers further help, with an increase in the tax-free annual allowance for pension pots from £40,000 to £60,000. For those who have already drawn flexibly from their defined contribution pension savings, there’s also an increase to the Money Purchase Annual Allowance (MPAA) from £4,000 to £10,000. Both these measures come into effect from 6 April 2023

As well as working out the best options for you, a financial adviser can help to ensure that the risk profile of your overall portfolio is at the right level for you and that it’s in the best position to meet your needs in retirement.

Even for those with several years to go before retirement, the current market volatility can be a concern. Indeed, in 2022, for the first time, investors took more money out of investment funds than they paid in. By doing so, investors simply crystallised a loss. Talking to us could well be helpful in ensuring you hold your nerve and keep a long-term view.

A reminder too that it’s not just about pensions. Your retirement income could well come from several different sources – including the state pension, your private pensions, ISAs, investment and savings accounts, earnings and even property. All have a role to play in helping provide you with a decent income for a comfortable retirement.

Get in touch

Whatever your situation, in the current environment it could well be worth having a financial review. We can help you build a retirement plan that gives you more flexibility and aims to provide you with the best income possible for your later life, so please get in touch.

Please note

This article is for general information only and does not constitute advice.

The value of your investment 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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

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