Want a basic retirement? Or fancy living in luxury?
WILL your pension be enough to help you sort out your bucket list, when you retire?
Will you be happy enough with just enough income to cover your bills, or do you imagine yourself doing more, perhaps the odd long weekend hotel break locally, and being able to run a car, so that you have the freedom to drive the 40 miles to visit your grandchildren?
Perhaps you may even aspire to holidays abroad, and changing the car to a newer model now and again?
Then you will want to know how much you would need for a comfortable lifestyle in retirement.
It's a great thing to know, because when you know what you're aiming for, we can help you work out how much you need to be saving now, to achieve that goal. Our motto here is ‘Life's better with a plan', you see.
It's also important if you're thinking of early retirement. How much have you got now, and what lifestyle will that give you?
Well, today we can tell you.
Every year, Which magazine does a survey of nearly 7,000 retired people, to ask them how much their retirement income is buying them. The research was carried out in February, and looks at both one-person and two-person households. It factors in the state pension as well as your workplace pension, and takes account of any tax bills.
The ‘standards of retirement living' they use come in three categories: essential, comfortable, and luxury.
Before we get to the numbers, we'd better define those.
‘Essential' income covers food and drink, but not eating out; household payments including any remaining mortgage; transport, utility bills, insurance, household goods including clothing, and health products.
‘Comfortable' covers these essentials but also covers regular short-haul holidays, recreation, some spending on alcohol and other treats, and charity donations.
‘Luxury' covers all the above, but also allows extended or long-haul holidays, health club memberships, eating out, and a regular new car (usually meaning every five years).
Now we can say what your annual spending would be, in each of those categories.
Essential spending would be £13k for one person, or £18k for a couple.
The comfortable lifestyle would cost £19k for one person, or £26k for a couple.
For the top-class luxury lifestyle, a single person would spend £31k, a couple would spend £41k.
Now we can work backwards, and ask: how much would I need in pension savings, for each of these lifestyle standards?
We bear in mind here that a single household would have one state pension coming in, while a couple would have much more.
To live at the essential level, a single-person household would need £77,350 in a pension drawdown i.e. drawing money gradually out of your pension, or £123,365 to buy an annuity.
For the ‘comfortable' retirement, a couple needs savings of around £155,000 alongside their state pension, to fund their lifestyle via pension drawdown – or just over £265,000 through a joint-life annuity.
For the luxury lifestyle, a single person would need £422,140 via drawdown, or £671,000 to buy an annuity. A couple would need £422,020 in drawdown, or £757,000 to buy an annuity.
The spending figures for typical households have been a little skewed this year, due to the temporary changes in people's spending habits during lockdown.
A few examples: couples spent on average 14 per cent less on recreation and leisure this year, and 10 per cent less on transport or car travel. At the same time, spending on cars, charitable donations and groceries all rose by six per cent.
Would you like to check where you stand with your potential pension income, and your consequent lifestyle?
We can tot up the figures, see where you are going, and tell you whether you need to be saving more today, while there is still time to boost your retirement outcome.
Would you like to switch up a gear, and elevate your ‘essential' retirement into the comfortable, or even the bucket list bracket? Give us a ring today!
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com