When you picture your retirement, it can be easy to assume your lifestyle will be the same as your current lifestyle, or even better, especially as you will have more free time to take part in hobbies and leisure activities you enjoy, but have you considered whether you will have the funds available to match the lifestyle you want? Nowadays people are living longer and spending more time in retirement, which often equates to requiring more income. With the State Pension only providing a basic level of income (just over £9,100 per year) and the State Pension Age increasing, people need to save more and plan ahead for the lifestyle they want in order to achieve it.
The Pensions and Lifetime Savings Association (PLSA) has developed the Retirement Living Standards to help people visualise how different amounts of income translate into a wider image of retirement. The standards illustrate that in general a single person will need about £10k a year to achieve the minimum living standard, £20k a year for a moderate standard of living, and £30k a year for a comfortable living standard.
Breaking these down, the minimum standard of living description is “Covers all your needs, with some left over for fun” and assumes the individual has no car, holidays for one week and one long weekend in the UK every year, spends £38 on a weekly food shop, does DIY maintenance and decorates one room in the home a year. In comparison, the comfortable standard of living has “more financial freedom and some luxuries” including 3 weeks of holidays in Europe every year, a 2 year old car replaced every 5 years, a new kitchen/bathroom every 10-15 years and a £56 weekly food shop. The moderate standard of living sits somewhere in between the other two with the description of “More financial security and flexibility”. Looking at the various elements of these scenarios it can be helpful to see how each income compares to both your current lifestyle and desired retirement lifestyle.
Many people put off thinking about retirement or pensions believing them to be thoughts associated with aging that can be considered at a point further down the line, but the fact is – you are never too young to think about investing in your future. By spending a few minutes logging into My Pension and considering how much is in your pension pot, you can gain a clearer grasp of which target you are on track to receive and whether you would be happy with the outcome.
The sooner you begin taking control of your pension, the more time you have to make sure your goals can be achieved. With a greater head start, there will be more time for tweaks (paying more or less) and there may also be less pressure to boost your pension pot later down the line. This could also offer scope for you to consider options such as flexible retirement, so you could potentially reduce your hours and begin receiving your pension at an earlier stage.