Many people who have retired are finding that the financial pressures are considerable. One reason for this relates to the value of their pensions. Saving up for life’s biggest milestones is no easy feat.
In the U.K. context, government data indicates that a large proportion of retired adults are considering returning to work due to cost of living pressures.
Furthermore, with the wider population, many working individuals, from Millennials to Baby Boomers, will be thinking of how and when they might retire.
To provide some kind of answer to this conundrum, the finance website Money.co.uk Savings has assessed how much it will cost the typical person to reach their retirement goals together with how long it will take.
The study analysed factors including the estimated time spent saving, the age people typically begin to save (for many this is not until they are in their thirties) and the average cost of major milestones to uncover the U.K.’s most expensive life milestones.
How much will I need to save for retirement?
The answer is: £238,146 on average
This figure is based on the current average life expectancy of 81 and in the context of a person earning the ‘average wage’ (post-income tax) of £22,708. Factoring these two sets of figures together leads to the assessment that the average amount required for retirement is £238,146.
As to how this goal can be achieved, there are multiple ways for a person to save for retirement, including the State Pension, which pays those who have contributed a sufficient level of national insurance £185.15 per week. This is not sufficient for many individuals and many will also pay into a separate pension plan.
There are two types of private pensions, some of which are based on how much is paid in and some based on a person’s salary. Defined contribution pensions are paid into by either the individual or by their employer (or some combination thereof). The money is then put into investments like shares.
With a defined benefit pension, the individuals is paid based on the rules of a plan. After calculations, this leads to the person in the scheme receiving a guaranteed retirement income each year. They can either be workplace pensions, set up by your employer, or private ones.
There are other ways to save for retirement too, such as a Lifetime ISA or other savings accounts.
How much has the cost of retirement increased over time?
The table below looks at changing sums over time:
| Average cost | ||
| 2012 | 2022 | Difference |
| £156,090 | £238,146 | 53% |
Hence, the cost of retirement has gone up by just over half in the last ten years, from £156,090 in 2012 to £238,146 today. While inflation is a factor, the figure has partially been affected by the life expectancy increasing from 79 to 81 in that time, meaning people have slightly longer to save for in retirement.
There are other challenges for people that seek to take resources away from pensions accruals. For example, the cost of buying a first car is the milestone that has increased the most over the past 10 years, from £9,795 to £19,330 and a deposit for a first home is estimated to take 8 years and 10 months to save up for, costing £40,424 on average.
