The cost of a comfortable retirement
We explain how much your dream retirement could cost based on recently updated Pensions and Lifetime Savings Association (PLSA) proposed retirement living standards.
Last Updated: 24 October 2023
A comfortable retirement looks different for different people. But no matter what it looks like, one thing is certain. You’ll need a solid plan to pay for life after work. Knowing what you’ll need to pay for can help determine how much money you’ll need to save.
In this article we look at three national income targets which could help you decide how much money you need to retire comfortably, but this isn’t personal advice. If you’re not sure what’s right for your situation, please ask for advice.
Things you need to know to retire comfortably
What lifestyle do you want in retirement?
The first step is to picture your future and what it could cost. For some it could be winding down completely and focusing on family while for others it could mean exploring new avenues like starting a new business or going on a dream holiday.
While you consider what lifestyle you want, it’s important to also consider how long you’ll need your retirement income to last. It could be that you live 30 years or more in retirement. In fact, over the past century, the number of centenarians living in England and Wales has increased significantly. Naturally you’ll need plenty of cash to see you through these years. Our longevity calculator could help.
TRY THE HL LONGEVITY CALCULATOR
What are the Retirement Living Standards?
The PLSA has proposed three living standards: minimum, moderate and comfortable. For a single person living outside London to reach a minimum standard of living they would need a yearly income in retirement of about £13,000 a year. A couple would need about £20,000. This amount would allow for some social occasions but means you wouldn’t be able to afford a holiday abroad or the cost of running a car.
To reach a moderate lifestyle a single person would need an annual income of £23,300 and a couple would need £34,000. This standard will allow you to spend more money on any nice-to-haves. You could be able to afford a two-week holiday in Europe every year and run a car.
At the comfortable living standard (£37,300 a year for a single person and £54,500 for a couple) you’d be able to enjoy more financial freedom and some luxuries. This includes taking an extended trip abroad, running a newer car that can be replaced more regularly and spending more on weekly food shops and personal items like clothing.
| Single person yearly income* | Minimum £12,800 | Moderate £23,300 | Comfortable £37,300 |
|---|---|---|---|
| Housework | DIY and decorating one room every year | Some help with maintenance and decorating each year | Replace kitchen and bathroom every 10/15 years |
| Food shop | £54 each week | £74 each week | £144 each week |
| Transport | No car | 3 year old car replaced every 10 years | 2 year old car replaced every 5 years |
| Holidays | 1 week and a long weekend away in UK every year | 2 weeks in Europe and a long weekend in the UK every year | 3 weeks in Europe every year |
| Clothing & footwear | Up to £580 every year | Up to £791 every year | Up to £1,500 every year |
| Birthdays | £20 for each birthday present | £34 for each birthday present | £56 for each birthday present |
Source: PLSA, 2022.
The figures provide a rule of thumb but everyone’s financial circumstances are different. You may need to add other costs depending on your circumstances such as mortgage, rent, social care costs and income tax.
Putting a price tag on your living standards
The PLSA living standards have been developed to help us picture what kind of lifestyle we could have in retirement. But what would it cost you to get an income worth £37,000 after taking tax-free cash and assuming you qualify for full State Pension at retirement is the main question. For example, someone buying an annuity at age 68 would need an estimated pension pot value of £444,000* in today’s money to get you to a comfortable lifestyle at retirement. This doesn’t have to be the cost of your comfortable retirement as this is based on the PLSA’s national income targets. It could vary vastly depending on your own personal view of what ‘comfortable’ means.
*This assumes you will take 25% of your pension as a tax free lump sum and that the income (other than the assumed full State Pension) is based on a single life annuity with no increases or guarantee period.
Are you saving enough to reach these targets?
By now you may have an idea of how much money you could need to fund your comfortable retirement. So, you might want to see if you’re on track. You can begin by checking in on your State Pension. But remember not everyone is eligible for a full State Pension. Even if you are eligible, you’ll only currently be able to take it from the age of 66. This is set to gradually rise to 67 between 2026 and 2028, and eventually to 68. PLSA also highlights that although the new total amount has increased from £9,628 to £10,600 per year, it is not enough to meet the PLSA’s Minimum Retirement Living Standard (£12,800 for a single person living outside London).
If you put money into a workplace pension, chances are your employer contributes too. It’s worth checking if they offer to match contributions if you pay in more. So, make the most of employer contributions.
It always helps to engage sooner with your pension. Our pension calculator will show you what your pension could pay each year to help make sure you’re on track for the retirement you want.
Can saving in a pension help with a comfortable retirement?
A pension like the HL Self-Invested Personal Pension (SIPP) is one of the most tax-efficient ways of saving for the future. It’s where your money grows free of UK income tax and Capital Gains Tax (CGT). Plus, you can benefit from a bonus of up to 45% (up to 47% for Scottish taxpayers) from the government in the form of pension tax relief on personal pension contributions. Although, tax relief on any personal contributions is limited by your earnings (or £3,600, if your earnings are less than this). There’s also a pensions annual allowance of £60,000 (for most people), which is the total value that can be paid into all your pensions each tax year before triggering a tax charge. Remember pension and tax rules can change, and any benefits depend on your circumstances.
You usually need to be at least 55 (rising to 57 from 2028) before you can access the money in a pension. Money invested in a pension is usually locked in for a long time, giving your investments the best chance to grow. But investments could go up or down in value so you could get back less than what you put in. At the time of withdrawal, you can usually get up to 25% from your pension tax free with the rest taxed as income.
If you choose to pay into a private pension like the HL Self-Invested Personal Pension (SIPP), you can invest exactly where you want and control how much money goes in and when.
Need help?
Book a free call back with our friendly and knowledgeable team on our helpdesk. We’ll try to answer all your questions no matter how big or small.
If you’re still not sure what’s right for your situation, a financial adviser can help you put together a financial plan for retirement. So, if you’re unsure, please ask for retirement advice. We offer a range of information and support to help you plan your own finances.
What you do with your pension is an important decision. We strongly recommend you understand all your options and check that the option you choose is right for your circumstances. Take advice or seek guidance if you’re unsure. The government provides a free and impartial service to help you understand your retirement options - more on Pension Wise.
