5 min read 17 Aug 23
What do most people think their retirement will be like when work is either finished or part-time? Will it be filled with travel, hobbies and an active social life? And will there be enough income left to help out family or other loved ones, if that’s what you’d like to do?
But how realistic are these kinds of expectations? Having more free time is one thing, but having enough money to do some, or all, of these things could be harder to achieve.
Research carried out by The Wisdom Council in association with M&G*, January 2023, shows that, among people not yet retired, just over a quarter (26%) expect their income will be more, or roughly the same, in retirement. However, almost half (43%) believe their outgoings will be greater or about the same.
What this shows is a worrying gap between how much money people think they’ll have coming in and what money they’ll have going out.
The ‘gap’ is further highlighted by the same research into the experiences of those who are already fully retired. Just over half of those surveyed said their income is spent on day-to-day living expenses, with a small amount (17%) for luxuries and treats, and slightly less (13%) to cover emergency expenses – which could be anything from fixing the central heating to car repairs, or unexpected vet bills for a much-loved pet. A similar amount (15%) is left for saving.
With day-to-day costs going up, more of people’s living expenses are being taken up by the essentials, like food and heating. All those wonderful, fun things people want to experience and do when they retire could slip further out of reach.
It doesn’t have to be that way. With preparation and some realistic expectations, there are ways to save for the kind of retirement you want, starting with being aware of how much you might need each year.
The Pensions and Lifetime Savings Association (PLSA) has put together some useful ideas:
Minimum level: £12,800 a year could cover all your basic needs, with a little left over for fun, based on not having a car, holidaying in the UK and spending £54 a week on food.
Moderate: £23,300 a year could offer a more secure level of income, with a three-year-old car and a two-week European holiday – and enough left to hire decorators as opposed to DIY, for example.
Comfortable: £37,300 a year will fund a two-year old car, the replacement of a kitchen every 10-15 years, £144 a week on food and three weeks’ holiday in Europe, with almost triple the amount available to spend on birthday presents than someone on the minimum income level.
These figures are based on a single person living outside London and are for illustration purposes only – you can find out what a couple might need on the PLSA website.
Understanding how much money might be needed is a great way to start, but the next step has to be to act on it. Leaving it all to chance in the hope that things will sort themselves out is unlikely to give anyone the best outcome.
Why not take the opportunity to think about your retirement plans today so that you can have the best chance of the retirement you want? If you haven’t already got a financial adviser and would like to speak to someone, you can find a financial adviser here.
* The Great Retirement report by The Wisdom Council, in association with M&G, January 2023