Couples now need an extra £9,100 a year to maintain a good standard of living in retirement, new figures show.
Rising prices have added almost a third to the amount of money retirees need to continue their current lifestyle.
Overall inflation fell to 4pc in the 12 months to December, raising hopes that the cost of living crisis is coming to an end.
However, retired households have been saddled with a much larger cost increase over the past year than other age groups. The income they need to live a ‘moderate’ lifestyle has risen by 27 percent as the things they typically spend on have seen the biggest price increases, a leading pension organization warned today. These include food, heating costs and travel expenses.
A ‘moderate’ lifestyle now costs a retired couple £43,100 a year, up from £34,000 this time last year, according to pensions industry guidelines. This would give them a two-week holiday to Europe every year, a long holiday in Britain and £55 per person per week in food shopping, the Pensions and Lifetime Savings Association (PLSA) report found.
Calculations for Money Mail by investment platform Interactive Investor have shown that a 65-year-old retiring today would need savings of £356,880 to cover an annual income of £31,300, assuming he or she receives the full state pension.
A single person living alone would need £31,300 a year, up from £23,300 last year, to maintain this lifestyle. The state pension will cover just over a third of the required income, even after rising by 8.5pc in April. has risen to £11,500. Only one in five new retirees has this amount – down from one in three a year ago.
This means those who stop working in 2023 will need an extra £108,880 to match the same pension they could have afforded at the start of last year if they used the pension to buy a guaranteed income.
Calculations for Money Mail by investment platform Interactive Investor have shown that a 65-year-old retiring today would need savings of £356,880 to cover an annual income of £31,300, assuming he receives the full state pension.
The association’s ‘retirement living standard’ is widely used by the pension sector as a benchmark for how much money people need after retirement to maintain their spending habits.
Rising food prices have been one of the biggest pressures on pension budgets over the past year, after food inflation rose by 19.2pc in March last year. reached a 45-year high. Food prices have risen by another 8 pc in the past year. increased, according to official figures.
Couples now have to spend £110 a week on groceries, compared to £74 last year – which cost an extra £36 a week. The lifestyle also allows you to spend £100 a month taking others, such as family members, out to eat.
Alice Guy of Interactive Investor says: ‘The rising cost of living is hitting lower income earners, such as retirees, much harder as they spend a larger share of their budget on essentials like food and heating.’
Pensioners are now spending more money on helping their loved ones, while younger generations are struggling to meet rising costs, researchers from Loughborough University calculated for the PLSA. This adds around £1,000 to the annual income they will need in retirement.
The report says: ‘Research participants spoke of the greater need now – in the context of substantial pressure on the incomes of working households – to be able to intervene and the costs of this element of social participation for family members such as their adults children and grandchildren.’
The six biggest areas where retired couples spend their money have all increased in costs, from household bills, food and drink and transport to holidays and leisure, clothing and social and cultural participation.
Alice Guy of Interactive Investor says: ‘The rising cost of living is hitting people at lower income levels, such as retirees, much harder, as they spend a larger share of their budget on essentials such as food and heating.’
Household energy bills have risen by £1,265 a year for single households and £715 for couples in the past year, while the cost of clothing and footwear has almost doubled to £1,500 a year.
Meanwhile, couples looking for a ‘comfortable’ retirement now need a combined income of £59,000 – up from £54,500; while a single person would need £43,100 – an increase of £5,800.
This would allow them to enjoy a two-week four-star holiday in Europe, three long weekends a year in Britain, £70 per person per week on food and to replace a car every five years.
A 65-year-old retiring today would need a £574,155 pension pot on top of the state pension, Ms Guy calculates. That means workers will need to save an extra £44,155 compared to a year ago to afford the same lifestyle.
To reach the minimum standard of living, you need to have an income of £14,400 this year – £1,600 more than this time last year, according to the PLSA. A couple must be able to withdraw £22,400 each year to meet their basic needs.
Couples receiving the full state pension will be able to pay it when it rises to £11,500 in April, but those living alone will have to find a further £2,900 a year from other savings and pensions.
Nigel Peaple, policy director at the PLSA, says rising costs have put ‘huge pressure’ on retirees’ household finances.
The state pension will be more valuable than ever thanks to its protection against inflation. The ‘triple lock’ acts as a crucial safeguard against the rising cost of living in retirement, meaning the state pension rises each year at the highest rate of inflation, income growth or 2.5pc.
Mr Peaple says: ‘It is important that workers saving for their pension remember that a married couple who are each fully entitled to the state pension will reach the minimum level.’ If you’re concerned that you won’t have enough money when you retire, consider postponing this or working part-time in your later years. This means you will have a higher annual income when you eventually leave the workplace.
According to pension fund Canada Life, if you stop paying into your pension at the age of 55, your final savings pot will be on average 59% smaller than if you had continued saving until the state pension age, which is currently 66.
If you are unsure how much you will need in retirement and how to manage your money, use the government’s free Pension Guide service.
If you are over 55 years old, book a free pension counseling appointment with: moneyhelper.org.uk/en/pensions-and-retirement/pension-wise
j.beard@dailymail.co.uk
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