How much should you already have saved for retirement?
How much do you reckon you need to have saved in order to live a financially comfortable retirement? For many people, it's probably a complete shot in the dark and the real figure is likely to be somewhat more than they'd imagined.
According to a report in the Independent newspaper on the 26th of February, so-called “generation X” individuals (those aged 43-54) are likely to need £187,400 already saved by now in order to enjoy a retirement income of around £19,000 a year – in reality, the average savings amongst this group is just £70,400.
Calculating how much you need
Financial comfort, of course, is likely to mean different things to different people. For some, a happy, contended and financially secure retirement might be enjoyed on what others consider a mere pittance.
It all depends on the lifestyle you hope to pursue, the amount you expect to be spending each month, and, of course, however long your retirement is likely to be. The variables may make a considerable difference to the amount of pension savings you might need – so the sooner you start saving in earnest, the broader your options are going to be.
You need to start as soon as possible if you are going to reach the pension pot of £260,000 suggested by the Telegraph newspaper on the 21st of February, which it calculates will generate an income of a little over £9,000 a year (by the time you retire at age 65 and if you used your pension pot to buy an annuity).
Also, you are also likely to qualify for the basic State Pension, which is currently £8,546, and would take your annual income up to £17,846 a year – somewhat less than the Independent's suggested target of at least £19,000.
Moreover, if you are a woman – and, therefore, expected to live longer – you need to aim higher than these basic targets.
How much do retired people actually spend?
Although the suggested target savings are just that – targets for achieving a basic degree of financial security in your retirement, actual spending patterns by the retired are of course extremely variable.
The latest figures released (on the 24th of January 2019) by the Office for National Statistics cover the period from the 1st of January 2017 to the end of 2018.
These show a weekly spend of between £153 to £453.90 (an average of £249.40) per person or a range of just £7,956 to £23,602 annually (an average of £12,968 a year).
Although these figures on spending by retirees may seem low, it is worth remembering that the average amount also includes large swathes of elderly individuals who are living in what the charity AgeUK (in a study dated April 2018) defines as “relative poverty”. The investigation revealed that, before housing costs are taken into account, more than 2 million pensioners are living on incomes less than 60% of the current average household income after the cost of housing is taken into account.
Anyone striving to lead a financially secure and satisfying lifestyle in retirement, therefore, is likely to be spending significantly more than the threshold of relative poverty.
Regularly reviewing your pension arrangements – and updating them when and if required – will help you achieve the sort of retirement you aspire to.