Your retirement should be a time of relaxation and enjoying the fruits of your labour from a lifetime of work. However, too many individuals underestimate how much is required for a comfortable retirement, or what is classed as a comfortable retirement in the first place.
This article will explore the different levels of retirement and how much you’ll need to save for each of them. We’ll also look at some of the factors to consider when setting your retirement goals and putting strategies into place, as well as potential risks and tips for retirement saving.
What Are The Different Retirement Lifestyle Levels?
Everybody’s version of retirement will be different, but there are broad levels that define the kind of lifestyle you want to live in your later years. This will account for your preferences and what you want from retirement, as well as your location, health, and retirement age.
Basic Retirement
Basic retirement covers the basics of living. This includes housing, which may be downsized from your current situation, utilities, food, transport, and potential healthcare costs.
In the UK, a basic retirement for a single person will be around £15,000 per year to cover these basic expenses.
For a couple, this is more likely to be around £22,000 per year.
While this might not sound like a lot, this level of retirement would require a retirement pot of £350,00 for a single person and up to £500,000 for a couple.
This will depend on your life expectancy, of course, but with people living longer, you can expect to need more for your retired life.
How to Reach a Basic Retirement
To achieve a basic retirement, a small personal pension combined with the State Pension could tip you over the required amount. However, the State Pension age is rising in a few years time and will likely rise again in the future, so you may need more.
Comfortable Retirement
A comfortable retirement offers more flexibility and includes dining out, modest travel, hobbies, and the occasional luxury. It’s essentially a case of covering your basic expenses with a bit of comfort thrown in.
In the UK, a single person would need around £30,000 per year to enjoy a comfortable retirement.
A couple would need upwards of £40,000 per year.
This means a retirement pot in the region of £600,000 for a single person and £800,000 for a couple, depending on what their definition of luxury is.
How to Reach a Comfortable retirement
To reach a comfortable retirement, you’ll likely need an investment portfolio on top of your State Pension. You’ll also want to utilise a personal pension and workplace pensions, contributing more than you would for a basic retirement.
Luxurious Retirement
A luxurious retirement is much more than the basics and includes regular fine dining, high-end travel, frequent holidays, private healthcare, and more spending money. It’s basically a lavish lifestyle compared to basic or comfortable, with fewer compromises.
For a single person, this will need to be at least £40,000 a year, and probably more depending on the level of comfort you want.
For a couple, you’ll be hoping for at least £50,000 – £60,000 per year.
To achieve this, a single person would have to save £1.2 million and a couple would need closer to £1.5 million.
How to Reach a Luxurious Retirement
Achieving luxury in retirement means significant savings, large investments, property income, and possibly inheritance money. It’ll come as no surprise that it will require extensive pension planning and private savings.
Considerations to Make For Retirement Saving
Saving for retirement depends on your circumstances and certain factors could throw you off course. These include:
Inflation
The first is inflation, which is critical for calculating how much you’ll need. Since costs average around 2-3% yearly in the UK, your retirement income needs to keep up with this or exceed it.
Your Investments
The role of your investments will also have ramifications for your retirement savings, and compound growth can help them grow significantly over time. Starting early with regular, small contributions is advisable and can accumulate over the decades.
Healthcare
Healthcare is another consideration to make when planning for retirement, as the older you are, the more healthcare you’ll likely need. People are also living longer than ever before, with the average life expectancy in the UK currently standing at 81. This means your savings need to last as long as your life will.
The State Pension
Finally, the State Pension should never be ignored when planning for retirement, and there are various benefits available to UK pension savers.
As well as providing £203.85 per week if you have 35+ years of National Insurance contributions, you may be eligible for additional benefits like housing benefits, pension credit, and more, which can supplement your savings.
Top Tips For Retirement Saving
- Start early. The sooner you start, the more you’ll have when the time comes.
- Use pension schemes. Maximise employer contributions and consider personal pensions and SIPPs.
- Invest well. ISAs, stocks and shares, and other low-risk options can help you save more over time.
- Regularly review. Track your progress over the years to make sure you’re on track, using financial calculators or professional advice.
Three Risks When Saving For Retirement
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Underestimating retirement needs
This is probably the biggest risk because many people don’t understand how much they’ll need for the retirement life they want. They often overestimate how much the State Pension will cover, too, and don’t save enough on top of this to reach their goals.
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Unexpected expenses
Medical emergencies, family support, or other significant life events can take their toll financially, so consider these when planning for retirement and always have the cash to afford them if you need it.
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Market downturns.
Your investments might take a hit in retirement if the market experiences volatility. This could reduce your ability to generate income but diversifying your investments can help you mitigate this risk.
Conclusion
Understanding how much you need for retirement is crucial, and considering factors that are out of your control like inflation, the cost of living, and life expectancy will help you create a robust retirement plan.
The best advice is to start taking actionable steps sooner rather than later, and diversifying your income streams so you can enjoy the retirement lifestyle you deserve when the time comes.
For advice around retirement planning, contact our team at 020 8366 4400 or email enquiries@cedarhfs.co.uk.