Reckon you’ll still get an annual holiday when you retire? You’ll need a £587k pension pot to do it
IF you want a comfortable retirement you'll need to build up a pension pot of £587,116 per person - or £355,856 if you're in a couple - according to new research.
This is if you want to turn your pension into an annuity, which pays you a guaranteed annual income for life in retirement.
An annuity isn't always the right option for every in retirement - you could leave the cash invested or take out lump sums as and when you need to.
But if an annuity is right for you, trade body the Pensions and Lifetime Savings Association (PLSA) has worked out how much you'd need to save to have the lifestyle you want in retirement.
For a comfortable retirement, the PLSA says you'd need to spend around £33,000 a year as a singleton or £47,500 as a couple.
This would mean you can enjoy some luxuries, such as regular beauty treatments, theatre trips and three weeks in Europe a year.
You could also afford a weekly food shop of £65 and could spend up to £150 a month on clothes and shoes.
And you'd also be able to afford proper home improvements with a kitchen or bathroom replacement every ten or 15 years.
To do this, you'd need a £587,116 pension pot as an individual - or £355,856 if you're in a couple - to turn into an annuity.
Plus, the research also assumes you're entitled to the full state pension, which currently stands at £8,767.20 a year per person.
The PLSA says the research is designed to help people imagine the kind of lifestyle they would like after they retire so that they can understand how much they need to save to achieve it.
But because there are so many different options when it comes to accessing your pension, the PLSA has only worked out the sums for those saving for an annuity.
The PLSA, meanwhile, looks at how much you's need to spend for a minimum, moderate or comfortable lifestyle and explains what you can afford to buy at each level.
Here's what you need to know.
Minimum retirement lifestyle
How much do I need to spend?
- For a single person outside of London - £10,200
- For a single person in London - £12,200
- For a cohabiting couple outside of London - £15,700
- For a cohabiting couple in London - £19,200
What do I get?
The minimum lifestyle covers all your needs plus enough for some fun activities.
For example, you could holiday in the UK, eat out about once a month and do some affordable leisure activities.
Unfortunately, you'd be unlikely to be able to afford a car and your weekly food and drink budget would be limited to
How much do I need to save into my pension?
The good news is that the full state pension is £8,767.20 per year, which is the bulk of the cash you need.
A single person who qualifies for the full amount would need to also have a pension pot worth £28,656 to turn into an annuity, while a couple could just live off their state pension.
Top tips to boost your pension pot
DON'T know where to start? Here are some tips from Aviva on how to get going.
- Understand where you start: Before you consider your plans for tomorrow, you'll need to understand where you stand today. Look into your current pension savings and policy and research when you’ll be eligible for the state pension, and how much support you’ll receive.
- Take advantage of your workplace pension: All employers are legally required to provide a workplace pension. If you save, your employer will usually have to contribute too.
- Track down your pensions: If you've moved jobs a lot, this means you'll have several pension pots. It can be hard to keep track of them all, but the government offers to help you.
- Take advantage of online planning tools: and have tools that give you an idea of what your retirement income will be, based on how much you're saving.
- Find out if your workplace offers advice: Many employers offer sessions with financial advisers to help you plan for your future retirement.
Moderate retirement lifestyle
How much do I need to spend?
- For a single person outside of London - £20,200
- For a single person in London - £24,400
- For a cohabiting couple outside of London - £29,100
- For a cohabiting couple in London - £33,100
What do I get?
The moderate lifestyle gives you more financial security and more flexibility.
For example, you could have a two-week holiday in Europe and eat out a few times a month.
Savers would have the opportunity to do more of the things they want to do.
How much do I need to save in my pension?
A single person who qualifies for the full state pension would need to have a pension pot of £267,116 to turn into an annuity.
For couples you'd need a joint pot of £125,856 to turn into an annuity.
Am I on track for a comfortable pension?
IF you are only putting in the minimum amount for your workplace pension then you are not saving enough for a comfortable pension..
The earlier you start saving, the less you'll need to put away each month. Here's how much you'll need according to consumer group Which?
- Which? reckons that you need to be saving £131 into your pension a month from age 20 to be able to have a comfortable pension.
- Anyone over 30 would have to save up to £198 a month.
- If you start savings at age 50 you need to be saving a staggering £633 a month to be able to have a £26,000 a year income when you retire.
- These figures assume that your employer pays his or her part of your pension contributions.
- You will also receive a state pension depending on how much national insurance you have paid over your working life; the maximum amount you can receive is £164.35 a week.
Comfortable retirement lifestyle
How much do I need to spend?
- For a single person outside of London - £33,000
- For a single person in London - £36,000
- For a cohabiting couple outside of London - £47,500
- For a cohabiting couple in London - £49,500
What do I get?
Pensioners who have saved enough for a comfortable retirement could enjoy some luxuries like regular beauty treatments, theatre trips and three weeks in Europe a year.
They could also afford a weekly food shop of £65 and could spend up to £150 a month on clothes and shoes.
They're also the only group that can afford proper home improvements with a kitchen or bathroom replacement every 10 or 15 years.
How much do I need to save in my pension?
Even if you qualify for the full state pension, you'll still need to build up a £587,116 pension pot if you're single. Meanwhile couples will need a pot of £355,856.
If you choose to keep your money invested once you retire, drawing some each year - you'll need a bit less.
Guy Opperman, minister for pensions and financial Inclusion, said: “It’s great to see what the PLSA has developed which has the potential to help savers think about the future and plan for the retirement they want.”
If you're thinking of starting a pension, Which? found that a 20-year-old needs to put away £131 a week to get a £26,000 a year pension.
While here's how builders and electricians starting on £18,000 a year could get a £100,000 retirement pot.
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Women £106k worse off than men at retirement due to lower paid jobs and part-time work.
And finally, here's how to boost your state pension by up to £250 a year.