Your retirement should be a period in your life when you’re free to pursue your passions and enjoy your later years however you see fit.
Certainly, it shouldn’t be spent worrying about money or how you’ll fund the remainder of your retired life.
However, the latest research from the Pension and Lifetime Savings Association (PLSA) has revealed that retirees are seeing the cost of their retirement rise by double-digit amounts.
In their Retirement Living Standards report, people in the “moderate” bracket of retirement living standards have seen the costs of this increase by 12% in the last year, while those in the “comfortable” bracket have seen costs rise by 11%.
Read on to discover what is causing these rises, how the costs of each standard of retirement are calculated, and three ways you can maintain your standard of living as prices increase.
The Retirement Living Standards measure retirement costs according to three categories
The PLSA introduced three categories of “retirement living standard” in 2019 to track the cost of different levels of life in retirement. The profile of each “standard” differs based on factors such as:
- Holidays and leisure
- Clothing and personal
- Helping others (for example, birthday gifts)
For example, the “moderate” standard of living includes a £127 weekly shop, a two-week annual European holiday, and eating out more than once a month. The “comfortable” standard assumes a £238 weekly shop, more luxuries/outings such as beauty treatments or theatre trips, and a three-week annual European holiday.
Over the last year the costs of these standards have risen by 12% and 11% respectively. So, if you want to achieve these standards of living in your retirement, it will cost you significantly more than it did just 12 months ago.
The PLSA say that much of the rise has been caused by the spike in domestic fuel prices, with the costs of gas and electricity accounting for between 30% and 40% of the increase in overall retirement costs across all budgets between 2021 and 2022.
Eating out and travelling have also become more expensive, nudging up the costs for those in the “moderate” and “comfortable” brackets.
If you’re worried about how you’ll maintain your standard of living in retirement despite higher costs, here are three quick tips.
1. Review your budget
If you want to maintain your standard of living on your current income, it could pay to review your budget. Are there any direct debits you can cancel, or any subscriptions or gym memberships that you no longer need?
Go through your bank statements and see if there are savings to be made. Shopping around for insurance, switching your bank account, and cutting out any unnecessary expenses can help you deal with rising costs.
2. Change your expectations
Rising costs may mean that you have to rethink your expectations of what your retirement looks like – at least in the short term.
For example, if you’re enjoying a “comfortable” level of retirement, you may choose to cut back your weekly grocery spend, or head somewhere closer to home for your holiday this year.
Making small changes to roll back your plans could give you the wriggle room you need to meet rising costs.
3. Speak to a financial planner
One of the issues with rising costs of living is that you may need to draw more from your pension or savings to meet your income requirements than you did before. You may then be concerned that you will deplete your pension pot too quickly and risk running out of money in the future.
We can use sophisticated cashflow modelling software to determine your current income requirements and whether your withdrawals are sustainable. If not, you can make tweaks to your financial plan.
Of course, if you are on course to live the lifestyle you want despite rising prices, you benefit from the reassurance that you can maintain your chosen standard of living without financial worries.
Get in touch
If you’re worried about the rising costs of living and the effect on your retirement, please get in touch. We can review your income and assets and establish the right course of action for you.
Please contact us by email firstname.lastname@example.org or call 0115 933 8433.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.