Wealth Management

How much income do you need in retirement?

The latest report from the Pensions and Lifetime Savings Association (PLSA) highlights the increases in how much you may need to live off in retirement.

Whether you are looking forward to retirement, are apprehensive, or are not sure how you feel about it, one thing is for sure – the more prepared you are for it, the easier it will be, both financially and emotionally.

This article provides an overview of the PLSA’s report findings and Old Mill’s top tips on how to prepare for retirement.

19th March 2024

PLSA Retirement Living Standards - report overview

The amount needed for a single person to enjoy a moderate retirement has risen to £31,300, according to the PLSA.

The rising cost of living and an increased importance of socialising following the pandemic had pushed up the annual income required by £8,000, the PLSA have stated in a paper from February – the PLSA Retirement Living Standards.

The PLSA uses evidence from focus groups to make the estimates, and they are intended as a guide for those planning their retirement savings.

The calculations are pitched at three different levels – minimum, moderate and comfortable – and are developed and maintained independently by the Centre for Research in Social Policy at Loughborough University.

They estimated that a single person needed £14,400 a year for a minimum lifestyle, and £43,100 a year for a comfortable retirement.

Couples required a joint £22,400 at the minimum level, £43,100 at a moderate level and £59,000 at a comfortable level.

Nigel Peaple, Director for Policy and Advocacy at the PLSA, said:

‘The cost of living has put enormous pressure on household finances over the last year and, as the research shows, this is no different for retirees.’

Old Mill's top tips on how to prepare for retirement
  1. Think about when you want to retire

It’s fair to say that the sooner the retirement planning thought process begins the better.

There is no fixed age for when you have to retire however financial considerations will often play a very important part in the decision process.  A key consideration will be to ensure you are confident that you will be in a secure financial position with the resources to fund your retirement years before you give up work.

Average life expectancy in the UK at 65 is 20 years for men and 22 years for women. But one in four men live to 92, one in four women to 94 and some live longer than this so your finances have to be flexible. Men retire at 64.7 years on average, while women leave work at 63.6 years old; so, for most people, retirement is hopefully going to be at least 20 years.

2. Plan a smooth transition

For many people, regardless of their financial position, we find a gradual transition from full-time work to full-time retirement is preferable. Perhaps look at cutting down your hours first, or maybe looking for a post-retirement part-time job, perhaps more related to your hobbies to ensure you don’t lose that sense of purpose.

According to research by YouGov*, amongst those who have already retired, a majority stated that a better work life balance was to be had by phasing your retirement from work.

While the research shows most people thought phased retirement would be a benefit, it was thought there could be downsides such as the potential reduction in retirement benefits and the difficulties in finding part time replacements for your role.

3. Work out how much money you’ll need

Everyone’s lifestyle costs are different and it is a good step to ensure you have a clear understanding of both your current and planned future expenditure.

  • The best way to work it out is to: Work out your current monthly expenditure. Think about the salary or income that arrives in your bank account and what is left at the end of the month; the difference is your current expenditure
  • Think about any additional costs in retirement, for example, more holidays or new hobbies
  • Deduct any regular costs that may no longer apply after retirement, for example, mortgage repayments, work costs (commuting etc), pension contributions, regular savings, as well as spending on dependents that will no longer be at home
  • Remember to add in an emergency pot of money to deal with those unexpected costs: home repairs or appliances breaking down.

4. Get clarity on your financial postition

List out your pensions, savings and investments on a spreadsheet or on a piece of paper. It may be easy to see the income some of these will pay you – some company pension schemes will give you a guaranteed income, or you may get rental income from buy to let property for instance.

Most people will also receive a pension from the government, currently when they reach the age of 66 although this is going to increase to age 67 in the next few years. The full state pension is currently £221 a week – that’s £11,541 a year or potentially over £23,000 for a couple.

5. Ask for help if you need it

We think a good way to achieve the financial future you want is to work with a dedicated financial planner.

Looking at all the steps above, we hope that working with a dedicated financial planner will make the planning and the process a smoother and more successful experience.

Knowing when you want to retire and when you have the resources to do this is a balancing act. Working with Old Mill can help bring clarity by looking at your current savings, pensions and investments and planning software can project how long these finances may last into the future based on your desired lifestyle costs and some assumptions such as investment growth and inflation.

Having this understanding can inform decisions about your future. We have certainly had some clients who have been positively surprised by their financial position and this has prompted them to retire earlier than they thought they would. For others it provides peace of mind they could retire if they want to.

We work with you to help with that transition into retirement and we also know plans change. As part of our service, we will have at least an annual meeting to see if any of your circumstances have changed which may need to be factored into your planning, to consider the impact of any changes in taxation and review how your investments have performed to support your retirement plans.

As you go through retirement, we can also advise as you reach later life and the matter of funding care costs or plan to help pass your wealth onto the next generation tax efficiently. We also offer an estate planning service which will help your family deal with your affairs after you’re gone.

If you want to discuss your retirement or would like to introduce someone else you think would benefit from advice speak to your financial planner or get in touch here.

* YouGov: Phased retirement – benefits and drawbacks according to retired British employees April 2023.