Retirement just got more expensive

The latest update to the PLSA Retirement Living Standards (RLS) reveal a significant jump in the cost of retirement living, driven by increases to the cost-of-living and changes in the UK public’s behaviour post Covid.

Its research shows that in the past year alone, the income an average couple would need to support a moderate retirement lifestyle has increased by an additional £9,100 – to £43,100 each year; whereas a single person would need to find an additional £8,000.

Different retirement lifestyles

Ensuring that you have enough to last you through your retirement can be a complicated process with various changes over the course of your lifetime and potentially various types of pensions accumulated.

Calculated by the Centre for Research in Social Policy at Loughborough University on behalf of the PLSA, the RLS describe the cost of three retirement lifestyles: Minimum, Moderate, and Comfortable:

Minimum – A ‘minimum’ lifestyle covers all your needs, with some left over for fun and social occasions. You could holiday in the UK, eat out about once a month and do some affordable leisure activities about twice a week

Moderate – A ‘moderate’ lifestyle provides more financial security and more flexibility. You could have one foreign holiday a year and eat out a few times a month. You’d have the opportunity to do more of the things you want to do

Comfortable – A lifestyle that allows you to be more spontaneous with your money. You could have a subscription to a streaming service, regular beauty treatments, a foreign holiday and several UK minibreaks a year.

 So how much do I need?

The PLSA forecasted that the following figures were appropriate income levels per year for each lifestyle:

For a more detailed look at what each level entails and what a range of common goods and services would cost for each level, you can look directly on the Retirement living standards website here.

The State Pension will go some way towards helping to start to cover these estimations, with the current state pension sitting at £10,600 a year (2023/24) and expected to rise to £11,502 in April 2024, but it is becoming more and more important for pension savers to start thinking more about funding their retirement themselves.

Why is this important?

Since auto-enrolment started in 2012, putting money away each month has become a ‘must do’ rather than a ‘should do’ for millions of people. Whilst it has no doubt helped millions of people save for their retirement, it has also increasingly become seen as more of a tax than a savings pot for retirement.

With increasing costs and decreasing engagement, the PLSA say that 77% of savers don’t know how much they would need for retirement and 51% believe that the minimum automatic enrolment rate is high enough to pay for their retirement.

What can you do about it?

Working out where you stand is always a great place to start. Luckily, our free retirement modeller tool can help determine your current position and where you might be at retirement, as well as tips to ensure you have enough saved.

Making the maximum contributions you can afford as early as possible in your working life will always give you the best opportunity to increase your retirement income. Whilst benefiting from additional time for market growth, you will obviously also get the additional tax saving by contributing to your pension and, depending on your employers’ benefits, they may even match your increased contribution.

It’s important to familiarise yourself with the mechanics of your retirement savings, so that you can be confident they are able to provide you with the benefits you will need.

Understanding whether existing products will give you a secure income, a more flexibly accessible pot to draw upon or a mixture of the two will allow you to make decisions on where you might need to focus your efforts, so you are more likely to achieve the right balance for you and your family.

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