Academics have estimated that a single person needs a net income of £10,900 a year to achieve a minimum standard of living in retirement.
The Pensions and Lifetime Savings Association (PLSA) have updated their calculations to reflect modern living standards, including Netflix subscriptions and haircuts.
For a couple, the revised minimum standard of living in retirement now costs £16,700 a year.
According to the PLSA, lockdowns gave people a taste of their likely needs in retirement.
Nigel Peaple, director of policy and advocacy at the PLSA, said:
“The pandemic has emphasised the importance of economic security as well as social and cultural participation in retirement.
“We hope the updated standards will encourage people to think about whether they are saving enough for the retirement lifestyle they want and, in particular, whether they are making the most of the employer contributions on offer in their workplace pension.”
The PLSA publishes three sets of retirement living standards based on minimum, moderate and comfortable retirement lifestyles.
The calculations are carried out by the Centre for Research in Social Policy at Loughborough University.
While only a rough guide for retirement income planning, the figures offer a strong starting point for those thinking about their likely expenditure in later life.
The researchers don’t include housing costs in their calculations on the assumption that mortgages are usually repaid in full before employment finishes. However, the PLSA is keeping that assumption under review.
For a minimum retirement living standard, it’s assumed that basic needs are met along with enough money to spend on some social activities, including a one-week annual holiday in the UK.
The calculation for the minimum standard also includes eating out once a month, but it does not include the cost of running a car.
Since 2019, when the figures were first calculated, the minimum standard has risen by £700 a year for a single person and £1,000 for a couple, which is a helpful reminder that price inflation must be considered in retirement.
According to the PLSA, the minimum living standard in retirement could be generally met with the combination of a full state pension of £9,339 a year, along with some income from a workplace pension.
The calculation includes a fortnight holiday in Europe each year and more frequent dining out for the moderate retirement living standard.
The moderate retirement living standard now costs £20,800 a year for a single person or £30,600 a year for a couple, with these costs rising by £600 and £1,500 respectively over the past couple of years.
According to the PLSA, about half of single employees are on track to save enough to fund a retirement lifestyle somewhere between minimum and moderate. Couples are on track to do better as they can share some costs in later life.
For a comfortable retirement living standard, the figure has increased by £600 since 2019 to reach £33,600 a year for a single person. For a couple, the figure is up by £2,200 in two years, to reach £49,700 a year.
A comfortable retirement living standard includes regular beauty treatments, theatre trips, and annual maintenance and servicing of a burglar alarm.
According to the PLSA, around one in six employees are on track to generate sufficient income in retirement to enjoy something between the moderate and comfortable retirement living standard.
If these numbers have you thinking about the affordability of your living standard in retirement, do get in touch.