With the state pension being so meagre, more of the population are assuming responsibility for their own pension pot. Whilst this can often ensure a more comfortable retirement free from financial burden, it does pose the question of how much is enough? If you are thinking of making changes to your contributions or even wondering if you can afford to assume more risk with your investments, then it may be time to sit down and work out how much income your current pension pot will give you in retirement and whether you are currently on track.
Of course one person’s needs will differ widely from another. However, regardless of whether you plan to settle in the country with a garden to attend, or dream of traveling to far off countries, the Pension and Lifetime Savings Association (PLSA) have created what they refer to as the Retirement Living Standards (RLS) which they have based on the average costs of goods and services in order to come to a sum that will afford retirees a good standard of living at three different income levels.
The minimum level suggests £10,200 per annum for a single person in order to cover all your basic needs with a small amount left over ‘for fun’ such as an annual holiday and the luxury of eating out once a month. This amount increases to £15,700 for a couple.
The moderate level suggests a single person will require a minimum of £20,200 and a couple £29,100 per annum in order to achieve greater financial security and flexibility including new clothing, decorating, and 2 weeks holiday in Europe each year.
Lastly the comfortable level caters to those from higher incomes and suggests that a single person would need a minimum of £33,000 and a couple would require £47,500 each year in order to achieve greater financial freedom including replacing kitchens and bathrooms every 10 years, 3 weeks holiday in Europe every year, and a generous clothing allowance.
Whilst this is not an exact science, it provides retirement savers with a general rule of thumb from which to build their retirement pot.
If you don’t currently have a pension or are thinking about moving your current pension, we recommend reading our Guide to SIPPS and Personal Pensions.