Have you considered how you will manage when you retire? Unfortunately, many people don’t and a recent study has shown the amount needed to have a ‘comfortable’ retirement is increasing.
According to data from the Pensions and Lifetime Savings Association, the minimum cost of retirement is up by about 20% from 2021 to 2022.
That means someone would need £12,800 a year to enjoy a ‘minimum’ standard of living in retirement, rising to £23,300 a year for a ‘moderate’ standard and £37,300 a year if you wish to be ‘comfortable’.
This is also assuming that person is living mortgage or rent free. Of course, the figures are indicative only as much depends upon the lifestyle that you have become accustomed to pre-retirement.
The numbers show if you retire at the age of 65 and live until you’re 85, to get a comfortable standard of living, you’ll need to have retirement pot worth at least around £750,000, per person. That assumes no growth on that sum whereas typically there would be a return albeit with any costs and inflation to factor in too.
If you don’t yet know how you might achieve that, it is never too early to seek professional financial advice.
You will need to consider what type of pension your employer offers and their contributions to your plan, as well as what you may receive for your State Pension and whether you are on track to receive the full entitlement, based upon National Insurance payments.
In light of the considerable tax advantages both during lifetime and after death (for your beneficiaries) funding pensions is likely to be the most attractive form of long-term saving for you up to age 75.
State Pension age
There is also potentially a collision in the pipeline regarding the State Pension age, with recent data suggesting life expectancy numbers have plateaued, so should the State Pension age also be capped?
Maintaining the current numbers of the population living up to and beyond State Pension age would mean an increase to 68 years by 2034, 69 by 2038 and 70 by 2042.
Many people are choosing to work longer and are able to do so, but it depends upon their personal circumstances.
It is worth noting that to ensure one-third of adult life is spent in receipt of the State Pension would push back the planned increase to age 67 to 2040 (instead of 2028) – but cost the Treasury billions of pounds.
It may be decades off for you personally, but it is never too early to start planning.
It is a catch 22, because any dramatic changes to the existing plan could see the government that imposes it obliterated at the ballot box – on the other hand, pushing back planned rises could cost the Exchequer tens of billions of pounds.
What it means is younger people need to face the reality that the state is unlikely to provide as much of their retirement income as it does currently and they need to make their own arrangements.
It is entirely possible those in the 20s or 30s today may have to wait until they are aged 70 and perhaps later before they can receive a State Pension. Whilst it would be dangerous politically, the Triple Lock (which impacts the rate of increase in the State Pension) may also be dropped.
