Pension living standards

We are particularly poor at academic research into retirement income in the UK, and, as a result, we make the job of retirement income planning much harder than it needs to be. We often have to use data from the USA, and some US rules (e.g. the “4% rule” and the “Retirement Spending Smile”) have been used, incorrectly, in the UK.

So, I was delighted to read that the team from Loughborough University has updated its 2019 research on Retirement Living Standards in the UK. The research asks the question “how much do people need for different standards of living in retirement?”, and divides retirees into groups to make it easy to understand how much the different groups spend, as per the table below:

I have used the London figures as I suspect that the cost of living in Sussex is closer to London than it is to the rest of the country, but you could reduce the figures a little.

A deeper investigation into the research shows that it was rigorous, and the information in it makes sense in the context of my experience. It’s a good guide for people who are trying to plan for their retirements and are unsure how much they might spend. It’s also interesting to compare your own spending to the spending of a typical household (but be warned, it may lead to a heated discussion with your partner!)

It does lack some detail, and makes the mistake of assuming that retirement is one homogenous phase of life (see our blog about the three stages of retirement). It seems unlikely that three weeks’ holiday abroad, or a new SUV will form part of a comfortable retirement for those in the “No-Go” phase of retirement. But the figures can easily be adapted to take account of real patterns of spending in retirement.

You can even use the research to work out roughly how much money you might need to fund your annual retirement spending. If you take off the income you expect to receive from pensions and other sources (e.g. property and investment income) after tax, and multiply by the relevant percentage (that will depend on your approach to funding your retirement and your personal circumstances), you can have a guess at how much you might need to have saved up to cover your annual retirement spending.

Don’t forget to add on some amounts for contingencies and emergencies, the amount you are going to put aside for care and your legacy amounts. My rough estimate is a fund of around £1million, in today’s terms, will be enough to fund a comfortable standard of living in retirement for a single person (assuming they get a full state pension and have no other sources of income).

It is great to see high quality research like this being carried out in the UK, and it makes the job of retirement planning easier. The detail of the report is available at https://www.retirementlivingstandards.org.uk/

Philip Wise | philip@sussexretirement.co.uk

Managing Director and Chartered Financial Planner


This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
A pension is a long-term investment, the value of your investment and the income from it may go down as well as up. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.
Levels and bases of, and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

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