How Much Cash Will You Need To Survive Retirement?

Lisa Smith, BA (Hons), CeFA
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How much money you need to last until you die has always been a difficult topic to unravel.

No one knows when they will die – the best guesses are just that.

But consumer watchdog Which? has stepped with some helpful calculations based on a basic, comfortable or luxurious lifestyle.

Couples who want to enjoy expensive holidays overseas and a new car every five years need to generate a retirement income of £42,000 a year, says Which?

To get this level of income, a couple would need a pension pot of at least £500,000 or an annuity of £695,000.

A couple going for a comfortable lifestyle need less money – around £27,000 a year, but could still spend nearly £5,000 on trips to Europe, while a basic lifestyle just covering day to day expenses would cost around £18,000 a year.

Don’t count on the state pension

Singles would need a bit less – £33,000 for a luxury retirement or £20,000 for some comfort in their later years.

“Single people, on average, need £33,000 for a luxurious retirement, which means they will need to have £481,000 saved to use drawdown or £622,000 to buy an annuity,” says Which?

“Some things cost about the same for those on their own. Single-person households spend an average of 83% of the outlay compared with their two-person counterparts on housing and insurance, and 78% of their expenditure on utility bills.”

Which? also explains that the state pension will cover some basic costs, but is unlikely to provide any little extras.

The state pension is £8,767 a year to those who have retired since 2016, or £6,718 a year to people retiring before April 6, 2016.

Call to overhaul advice rules

Pension provider trade body the Association of British Insurers has published research showing that retirement savers are withdrawing too much cash from their pensions.

Withdrawal rates have reached 8% in four out of 10 cases, when a rate of 3.5% would be more suitable, says the ABI.

The organisation is urging the government to overhaul pension advice rules so firms can explain options to savers without recommending action.

ABI director of policy Yvonne Braun said: “Nearly five years on from their introduction, it is now time to review how the pension freedoms are working. They may have brought about a retirement revolution, but it is too soon to tell how things will turn out.

“This report highlights some warning signs. We urge government and regulators, working with the industry, to act on our recommendations, to deliver the changes needed to improve the outcomes for present and future retirees.”

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