Pension pot of £645,000 needed for a comfortable retirement lifestyle

According to Quilter’s calculations, a pension fund size of £645,000 is required for one person to achieve a comfortable retirement lifestyle.

The figures are based on the Pensions and Lifetime Savings Association’s standards of living, published earlier this week, which have been updated to take into account the cost of living.

Quilter’s calculations assume an increasing income of 3 per cent and an annuity rate of 5.1 per cent based on someone aged 66 (the current state pension age).

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It comes after PLSA research revealed that pensioners struggling to meet a basic standard of living have seen their spending rise by almost 20 per cent over the past year due to high inflation.

A comfortable retirement requires a single person to have an annual income (before tax) of £26,700 a year on top of the State Pension, which is £10,600 a year in 2023-24.

According to the PLSA, this consists of being able to go abroad in Europe for three weeks a year, having £144 to spend on food per week and being able to donate £56 for each birthday present, among other things.

Jon Greer, head of pensions policy at Quilter, said: “While these figures are indicative only, it’s worth noting that just to achieve a moderate lifestyle you need to build up a fairly significant retirement fund.

“Starting young is key because pension funds have a compounding effect that helps money grow much more the longer it’s in the bank,” he said.

For someone who wants to achieve what is defined as a moderate retirement lifestyle, a single person will need to build up a retirement fund of around £301,000, Quilter explained.

A moderate lifestyle includes being able to afford £74 a week for food (including meals away from home), as well as two weeks in Europe each year and a long weekend in the UK.

Finally, for someone to achieve the bare minimum lifestyle which requires someone to have £2,200 in extra earnings per year on top of the state pension, they need to have built up a pot of around £44,000.

A minimal lifestyle allows someone to spend £41 a week on groceries, not have a car and spend a week away in the UK and a long weekend every year.

Greer said it’s worth noting that all PLSA data assumes retirees live in their homes without rent or a mortgage.

“Therefore, while these numbers make sense now, for future generations these numbers will have to increase significantly,” he said.

“This is due to soaring house prices, which means many are struggling to find the money to buy a home or are being forced to take out marathon mortgages with terms stretching up to 70 years to achieve lower monthly mortgage payments.”

Speaking to FTAdviser today, a PLSA spokesperson said that using different assumptions, he arrived at slightly lower projected bank sizes.

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