New research has put a post-pandemic price on the amount of income needed for retirement, but have you ever thought about what standard of living you want in the future, and at what cost?
We are joined with financial advisory experts from SMH Financial Services to share their tips on making sure your pension and retirement pots won’t be leaving you short. So, how much income do you need for a comfortable retirement?
Option one: Work out your percentage pay
One traditional way to answer the question of how much income you will need in retirement is to fix the amount as a percentage of pay. For example, when final salary pension schemes were more common, their target was often around two thirds of earnings. While this approach produces an easy to calculate number, it is arbitrary. For low earners it may produce too low a number, while at the opposite end of the scale the result may be too high.
Option Two: Look at Retirement Living Standards
An alternative is to focus on retirement living standards, an option that has been supported in the UK by the Pension and Lifetime Savings Association (PLSA) and is mirrored by approaches used in other countries. The PLSA sets three levels of post-pandemic retirement:
- Minimum (£10,900-£13,200 for a single person, £16,700-£21,100 for a couple)
Covers all your needs, with some left over for fun. DIY property maintenance. A £41 weekly food shop. No car. A one week UK holiday plus one long weekend UK break. £410 budget for clothing and footwear. £10 each to spend on gifts for family such as birthday presents/Christmas.
- Moderate (£20,800-£24,500 for a single person, £30,600-£36,200 for a couple)
More financial security and flexibility. Some help with maintenance and decorating each year. A £47 weekly food shop. 3-year-old car replaced every 10 years. 2 weeks in Europe and a long weekend in the UK every year. £730 for clothing and footwear each year .£30 for each birthday present.
- Comfortable (£33,600-£36,700 for a single person, £49,700 – £51,500 for a couple)
More financial freedom and some luxuries. Replace kitchen and bathroom every 10/15 years. A £59 weekly food shop. 2-year-old car replaced every 5 years. 3 weeks in Europe every year. £1,200 for clothing and footwear each year. £50 for each birthday present.
So how does your retirement look???
Where would you want to be on those scales? It’s likely that most of us would veer towards ‘comfortable’, or perhaps in the ‘more than comfortable’ bracket!
If the numbers surprise you, then it is probably time to start checking that your retirement funding and investments will meet the standard of living that you want. Talk to a financial advisor to confirm your figures, situation and work on a retirement plan.
