£738,000 buys a ‘comfortable' retirement - you face three hard choices if falling short

Most of us will fall far short, with the average pension pot at retirement just £107,300 while one in four have none. Only the very wealthy will be able to kick back and relax about money when they stop working.

To achieve the bare “minimum” retirement living standard, a single person now requires income of £14,400 a year, according to the latest annual report by the Pensions and Lifetime Savings Association (PLSA).

That is up from £12,800 last year, a rise of £1,600. Couples need £22,400.

A minimum lifestyle enables someone to spend £50 on a weekly food shop and a week-long UK holiday. It does not stretch to running a car.

Sarah Pennells, consumer finance specialist at Royal London, said this is scant reward for a lifetime of working: “The reality is very few treats, holidays and having to watch every penny, potentially for 20 years or more.”

A single person who wants a “moderate” retirement living standard needs £31,300 a year.

That is a huge leap of £8,000 from last year’s £23,300. The increase is mostly down to rising energy and food bills, and a rise in retired people socialising after Covid lockdowns were lifted.

Couples need £43,100.

A moderate lifestyle includes being able to afford £74 a week on food, two weeks in Europe and a long weekend in the UK.

Finally, that “comfortable” retirement requires income of £43,100 for singles and £59,000 for couples. This would fund a four-star foreign holiday, three UK long weekends and up to £1,500 a year on new clothing. It’s not exactly spend, spend, spend.

The new state pension is set to rise to £11,501 a year from April, but many get less. It’s nowhere near enough.

Retirement-pension-income

Wealth manager Quilter has now worked out how much pension people need to hit each target.

It concluded that a single person needs £63,000 to hit the minimum retirement income. They need £459,000 for a moderate income and a scarcely believable £738,000 to be comfortable. These figures all assume full new state pension.

A couple who both received the full new state pension would hit the minimum lifestyle target, even if they had no savings.

However, those wanting a moderate lifestyle would need £514,000, while a comfortable retirement for two requires £929,000.

Quilter’s head of retirement policy Jon Greer said: “The earlier people start saving the better. Unfortunately, no one is going to do it for you.”

It gets worse. These figures are all based on the assumption that the pensioner has cleared their mortgage and has no housing costs. Unfortunately, growing numbers are reaching retirement with outstanding mortgage debt, while 1.7 million pensioners pay rent.

This is forecast to hit 3.6million by 2041, according to the Pensions Policy Institute.

Greer said the social care crisis will only add to the challenge.

My Pension Expert policy director Lily Megson said the cost-of-living crisis is making retirement even more expensive and forcing people to make tough decisions.

Those who have not saved enough pension face three stark choices. “You will either have to delay retirement, settle for a more austere lifestyle after you stop working, or go back to work to boost your retirement savings.”

More of us will have to work later into life to make ends meet. The problem is that many will be too unhealthy to do so.

There is a fourth option, but only available to homeowners. They could unlock the capital in their home via an equity release lifetime mortgage, and use it to raise spending money.

Equity Release Council chief executive Jim Boyd said this will become more common as people struggle to build enough pension. “With approximately £2.6trillion of net housing wealth in homes owned by people aged 65 or over, property needs to be part of the conversation.”

Everybody should be having their own conversations, to work out what lifestyle they would like in retirement and what they have to do to achieve it. The answer is to save, save, save, but for many that is not possible and for others it is too late.