Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.
Figuring out how much money you will need during retirement can feel overwhelming. Thankfully, someone else has already done the heavy lifting. The Pensions and Lifetime Savings Association (PLSA) has calculated how much minimum, moderate and comfortable standards of retirement cost. The results underpin how much you will need to save for later life.
How much does a year of retirement cost?
How much retirement costs depends heavily on lifestyle. Are you a jetsetter with a penchant for home renovation? Or are you prepared to live more frugally?
A less obvious consideration is whether you have a partner: single pensioners face significantly higher outgoings than those in relationships.
These factors are reflected in the PLSA’s Retirement Living Standards. The figures show the total amount you are likely to spend each year, depending on your lifestyle bracket.
| Minimum | Moderate | Comfortable | |
|---|---|---|---|
| Single | £13,400 a year | £31,700 a year | £43,900 a year |
| What standard of living could you have? | Covers all your needs, with some left over for fun | More financial security and flexibility | More financial freedom and some luxuries |
| Minimum | Moderate | Comfortable | |
|---|---|---|---|
| Couple | £21,600 a year | £43,900 a year | £60,600 a year |
| What standard of living could you have? | Covers all your needs, with some left over for fun | More financial security and flexibility | More financial freedom and some luxuries |
What do the numbers leave out?
These figures are a very useful starting point for retirement planning. However, they make some big assumptions. The first is that you will be living mortgage and rent-free. According to the PLSA, this is still what most of the population close to retirement will achieve in the next few years - but it is obviously not guaranteed.
The second thing to remember is tax. The figures above are annual expenditure estimates, rather than gross income requirements. Your total pre-tax income will need to be significantly higher than the numbers cited, therefore.
For example, if you are single and are aiming for a comfortable retirement income of £43,900, you will need total pre-tax income of around £52,000. On the plus side, this doesn’t all have to come from your own nest egg; the full state pension amounted to £11,500 a year in 2024-2024
The final consideration is the cost of care. More of us are facing hefty care home fees and other medical bills as life expectancies increase. The PLSA’s ‘basket of goods’ does not include these outgoings, so it may be necessary to spend more than the headline figures suggest.
How much do I need to save in total?
Fidelity has several tools to help you achieve a comfortable retirement, including interactive calculators and written guides.
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in a SIPP and tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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