Despite a slowdown, life expectancy is still increasing, with one in five newborn males and one in three females expected to live to at least the age of 90.
Many older people currently in their 50s, 60s and 70s will also live well into their 80s and 90s, often spending two or sometimes three decades in retirement. According to the Office for National Statistics (ONS) life expectancy calculator, average life expectancy for a man currently aged 55 is 84, whilst a 55-year old woman has an average life expectancy of 87.
Similarly, life expectancy at age 65 for men is 85 and 87 for women, whilst a man who is 70 can expect to live to 86 and a woman this age to 88. Given that many of us will live for such a long time, it’s vital to think carefully about how much you might need to fund such a lengthy retirement.
Crunching the numbers
According to the Pensions and Lifetime Savings Association (PLSA), a single person would need an annual income of £10,200 for a basic minimum standard of living at retirement, rising to £15,700 for a couple.
For a moderate lifestyle, which would include a few luxuries such as a two-week holiday in Europe, a single person would need an annual income of £20,200, or £29,100 if they’re in a couple. To enjoy a comfortable lifestyle, which would include longer holidays and running a car that can be replaced regularly, the PLSA says a single person would need £33,000 a year, or £47,500 for a couple.
To work out exactly how much you might need, start by sitting down and thinking about what your outgoings will be. A spokesman for Wealth at Work, a specialist provider of financial education and guidance in the workplace, said: “Work out how much income you are going to need in retirement including essential income to meet your day-to-day living expenses (household bills etc), and discretionary income for holidays, hobbies and so on.
“Don’t presume it is the same as your salary. It may be possible to have the same disposable income in retirement as when you were working, even if your pension income is less than half your salary. This is because when you retire, you may be paying less income tax, no National Insurance (NI), mortgages and loans may be paid off, and children are likely to be financially independent.”
Don’t panic if you don’t have enough in your pension to fund the sort of retirement you want, as there may be other ways to boost your income. For example, you might decide to work part-time, take in a lodger, or to downsize or release equity from your home to free up extra cash. None of these decisions should be made lightly, so you might want to seek professional financial advice about how to supplement your retirement income.