Understanding the Retirement Living Standards
Retirement costs are personal, but independent research from the Pensions and Lifetime Savings Association (PLSA) provides a useful benchmark. They outline three Retirement Living Standards (RLS) for different lifestyles: Minimum, Moderate, and Comfortable. These figures, updated annually, give people a realistic picture of what their retirement could look like and the income required to achieve it.
The figures assume you own your home outright, so if you have outstanding mortgage payments or rent to cover, you'll need to adjust your target income accordingly. The RLS covers key spending areas such as household bills, food, transport, holidays, and clothing.
The three tiers of retirement living
- Minimum: This covers all basic needs, with a small amount left over for fun. There is no money allocated for running a car.
- Moderate: This offers more financial security and flexibility, including some leisure activities and running a second-hand car.
- Comfortable: This provides more financial freedom, including more extensive holidays and a more generous budget.
The financial breakdown
Here is a detailed comparison of the annual expenditure required for a single person and a couple at each of the three retirement standards, based on recent PLSA figures.
| Minimum | Moderate | Comfortable | |
|---|---|---|---|
| Single Person Annual Expenditure | £13,400 | £31,700 | £43,900 |
| Couple Annual Expenditure | £21,600 | £43,900 | £60,600 |
These figures represent the amount of money you would need to spend annually, not the required income before tax. Your actual income needs will be higher to account for taxes.
Building your retirement pot
To fund these lifestyles, most people rely on a combination of the State Pension and a private pension pot. For the 2025/26 tax year, the full new State Pension is £11,973 per year. Achieving a moderate or comfortable lifestyle requires significant private savings, potentially ranging from £540,000 to £800,000 for a single person's comfortable retirement, depending on how funds are accessed.
Funding your retirement: Drawdown vs. annuity
Once you reach retirement, you have several options for turning your pension pot into an income. Pension drawdown allows flexible income but involves market risk, with some using rules like the 4% rule for withdrawal estimates. An annuity offers guaranteed income for life for a lump sum, providing security but potentially lower returns. Rates depend on factors like age, health, and interest rates.
Considering other factors
Several other factors can influence how much you need to retire comfortably. These include inflation eroding purchasing power, housing costs if you don't own outright, potential increases in healthcare expenses and long-term care, and your individual spending habits.
A personalised approach to planning
Saving for retirement can feel overwhelming, but a personalised approach is the most effective. Break down the process into smaller, manageable steps:
- Work out your ideal lifestyle: Use the PLSA Retirement Living Standards as a guide, but tailor the budget to your specific wants and needs.
- Estimate your state pension: Get an official State Pension forecast from the government website.
- Review your current savings: Find out how much you have in any workplace or personal pensions and project their value.
- Consider extra sources of income: Include other savings, investments, or potential income from part-time work.
- Seek professional advice: A financial adviser can provide a cash flow forecast and create a tailored plan, helping you maximise tax efficiencies and choose how to access your pension.
Your retirement journey is unique, and taking proactive steps now will give you greater peace of mind. Start planning early and regularly review your progress.
For more detailed information on the costs associated with different retirement lifestyles, you can explore the {Link: Pensions and Lifetime Savings Association Retirement Living Standards https://www.retirementlivingstandards.org.uk/}.
Conclusion
Determining exactly how much you need for a comfortable retirement in the UK is personal, but the PLSA's Retirement Living Standards offer a solid starting point. By combining your State Pension with private savings and planning for potential inflation and healthcare costs, you can build a robust financial plan. Setting realistic goals and considering your options will help ensure your retirement is both comfortable and financially secure.
