3 Your retirement lifestyle and the income you’ll need
Let’s look at how much money you’ll need in retirement. To do this there is a two-part activity to complete following the guidance below.
Activity 1: Will your pension provide the retirement lifestyle you want?
The first part of the activity is to get a view on how much money you will need in retirement to support the lifestyle you’re aiming for.
One way to do this is to repeat the spending part of budgeting activity in Session 1, adjusting the figures for how you expect to be spending money in retirement. Some spending will have fallen - for example because your mortgage is likely to have been paid off. Other items may increase – perhaps more money will be spent on holidays or investing in green alternatives to heat your home?
Alternatively you can get a quick impression of how much you might need by looking at the research Loughborough University’s Retirement Living Standards team have done into different lifestyles for retirees.
Follow this link to their research and consider what retirement lifestyle you would aim for and what that would cost. How do you feel about the amounts quoted. Are these surprisingly high? Do you think you would have the money in retirement for that ‘comfortable’ lifestyle?
Retirement Living Standards [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)]
Now you have some idea of the money you’ll need in retirement it’s time to get a forecast of what income your pension savings will provide.
If you are in a defined contribution pension scheme you will need to have your most recent statement on hand. Many schemes now provide these details online. This should show how much both you and your employer (if you are in a work-based scheme) pay into your pension pot. The statement should tell you the size of your pot and provide an estimate of the pension it might provide.
If you have more than one pension pot then you can add the figures together for forecasting purposes.
Once you have all your information, see what income you can expect in retirement with this quick calculator. You’ll also need details of any defined benefit schemes you’re a member of. And do note that the calculator assumes you will get a full state pension.
Discussion
How do your retirement plans look after completing this activity? Do the results pleasantly surprise you or are you disappointed? If the latter you can take action to boost your pension – even a relatively small increase in your pension contributions will make a difference over the longer term. Don’t worry, coming up later we have some other suggestions to help you.