Retirement now

Paying into a pension gives you the freedom to stop working when you’re older. It sounds easy, but many people struggle to know how much they need to save to have the kind of lifestyle they want in later years. Read on to find out how retirement is changing, what a typical retirement costs and how to find out if you’re on track.

How retirement is changing

One big change is that we’re moving away from a ‘cliff edge’ approach where people stop working altogether. Instead, many of us are choosing to scale back, perhaps by going part time, changing careers or having a ‘side hustle’. A 2022 study by Abrdn found that just 34% of retirees said they plan to give up work completely, compared to 44% in 2021.

Another shift is the way people approach retirement. The same research asked people what they were most looking forward to, with the top answers being:

• the freedom of their own schedule;
• spending time with loved ones; and
• taking up hobbies or learning new skills

A whopping 72% said they planned to move house, with 19% saying they wanted to be closer to family. Others were prioritising downsizing, moving abroad or city life.

Understanding retirement costs

Clearly, today’s retirees want to stay active, and live a comfortable lifestyle, but many are worried about whether their savings will stretch far enough. In part, these concerns are fuelled by the changes to how we save for retirement. Final salary pensions are increasingly rare (except for public sector workers) and most people now have defined contribution pension schemes. (Not sure of the difference between the two? We’ve explained it here) This means that the money we have to retire on is dependent on how much we save, the tax relief we get, and the returns on our investment.

The Pension and Lifetime Savings Association (PLSA) has developed the Retirement Living Standards to help you picture what kind of lifestyle you want to have when you wind down from working, and give you an idea of how much income you’ll need to support this.

For instance, a couple wanting a basic retirement will need an annual income of £22,400 a year after tax (£14,400 for a single person). At this income level, the research says you can expect to do DIY maintenance, have a weekly £95 food shop (for a couple), and should be able to afford a week long holiday in the UK. Unfortunately, the budget doesn’t stretch far enough for a car. Find out more about the Retirement Living Standards here.

The good news is that this basic level of retirement will already be very nearly funded for couples where both partners are entitled to the full state pension. Single retirees will have a slightly larger shortfall to make up with other savings. Check whether you’re on track to get a full state pension here.

For a more comfortable requirement, the PLSA Retirement Living Standards state that you’ll need an income after tax of £59,000 for couples and £43,100 for singles. This level of income would allow you more freedom and luxuries, such as being able to replace your kitchen and bathroom every decade, a £130 weekly food shop (for couples) and a enjoy a 4* fortnight in the Med each year. However, to achieve this level of income means having a substantial pension pot or other savings on top of any state pension entitlement. That’s why it’s so important to save hard to get the retirement lifestyle you want.

Planning for retirement

The first step is to find out what kind of retirement you’re on track to receive by checking the value of your savings regularly. This can help you see whether you need to put aside more each month to achieve your goals. You can also consider steps like going part time in retirement or working for longer to boost your savings and retirement income. Check your pot now by logging into your Retirement Savings Account.

You can also compare your savings vs. your aspirations by taking our short interactive quiz, here.

Once you’ve done the quiz and know what type of lifestyle you want in retirement, you can use our handy pension savings tool to see if you’re track and – if you’re not on track – the impact of saving more in your pension or delaying the age you retire.