In 2019, the Pensions and Lifetime Savings Association (PLSA) developed new guidelines to help people figure out how much money they need each year when they retire.
Instead of just looking at a certain percentage of what people made before they retired, these guidelines consider how much money people need after they retire, based on different lifestyles, whether they are single or in a couple, and whether they live in London or somewhere else.
For a couple, the 2022 standard can be summarised as follows:
|What standard of living could you have?
|Covers all your needs, with some leftover for fun.
|More financial security and flexibility.
|More financial freedom and some luxuries.
|DIY maintenance and decorating one room a year.
|Some help with maintenance and decorating each year.
|Replace kitchen and bathroom every ten/15 years.
|Food & drink
|A £96 weekly food shop.
|A £127 weekly food shop.
|A £144 weekly food shop.
|The three-year-old car replaced every ten years.
|Two cars, each replaced every five years.
|Holidays & leisure
|A week and a long weekend in the UK every year.
|Two weeks in Europe and a long weekend in the UK every year.
|Three weeks in Europe every year.
|Clothing & personal
|£460 for clothing and footwear each year.
|£791 for clothing and footwear each year.
|Up to £1,300 for clothing and footwear each year.
|£20 for each birthday present.
|£34 for each birthday present.
|£56 for each birthday present.
In November 2022, detailed research undertaken by Loughborough University was published, which the PLSA used in this latest update of income levels. These do not yet include figures for London, which are due shortly.
What were the results?
In 2022, the amount of money a couple needs to have to have a comfortable retirement will be more than it was in 2021. This increase will differ depending on what kind of lifestyle the couple wants to have in retirement. For example, for a couple who wants to have a very basic lifestyle, the increase will be 19.2%, but for a couple who wants to have a comfortable lifestyle, the increase will be 9.7%.
The biggest reason for these increases is the cost of food and energy. This is especially true for couples who want a very basic lifestyle because they spend a bigger part of their money on food and energy than couples who want a more comfortable lifestyle. Additionally, these new guidelines consider the current prices for food and energy and the nutritional research for a healthy diet.
It is essential to note the figures exclude housing costs, so pensioners renting their homes will need to cover higher spending.
The jump in the Retirement Living Standards income levels is a reminder that headline inflation is just one measure of changing price levels and that the expenditure pattern of retirees is not the same as those still in work.
What can retirees do?
For retirees with inflation-linked pensions, such as annuities or defined benefit pensions, increases in their payments will help. For those with pension pots, we have previously highlighted the need to invest in a robust, globally diversified portfolio, holding as much in equities (Stocks & Shares) as is suitable for you.