Can you meet the rising cost of retirement?
Post by Mearns & Company in News
The recent rise in the cost of living, alongside possible increases to the State pension age (SPA), may have pushed your previous retirement assumptions out of line. Some people may need to save more each month or postpone retirement — or possibly both — to get retirement plans back on track.
A study published in January 2023 by the Pensions and Lifetime Savings Association (PLSA) reckoned that the minimum income pensioners need to ensure a basic standard of living had increased by 19% for a couple since 2021 — significantly more than the headline rate of inflation.
Single people looking for a ‘moderate’ level of income in retirement (allowing for spending on leisure activities, for example) now need £23,300 a year, or £34,000 for couples. Those looking for a more ‘comfortable’ retirement (potentially including holidays or presents for family) should be looking to generate an income of £37,300 (or £54,500 for a couple) – an increase of around 11% on previous levels, according to the study.
A couple sharing costs would need to save around £328,000 in private and workplace pensions for a comfortable retirement, on top of two full State pensions. While the State pension will rise by 10.1% in April, future increases are unlikely to be as generous.
There has been a bigger increase in the cost of basic living standards, as a far greater proportion of people’s income is used to buy food and fuel – sectors with some of the biggest price rises recently.
Build in flexibility
Higher bills aren’t the only thing that would-be retirees need to consider. Changes to the State pension age (SPA) could mean having to save more to make up shortfalls or work for longer. The SPA of 66 is due to rise to 67 by 2028 and to 68 by 2046. Recent reports suggested the government was considering bringing forward that latter increase to 2035, potentially affecting millions born in the 1970s. The next pension age review is due in May, but falling life expectancy figures may have put that change on hold for now.
Whether or not these changes take place, it is worth checking when you will receive your State pension and what it will be worth. Recent research by Standard Life found that one in three workers didn’t know when they would receive this benefit, with almost one in two (44%) having no idea what it would be worth.
Saving sufficient sums to fund a decent retirement can seem like an uphill task — particularly if the goalposts keep moving. But reviewing plans regularly and building in some flexibility is increasingly important. Identifying potential shortfalls at an earlier stage means savers are in a better position to plug these gaps over the longer term and secure a more comfortable retirement.
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