How much does the average retired person need to live off.

[MattA7]

Giving pensions (private and workplace) generally only payout a very small amount eg. £10k a year going up to possibly £20-25k at best how do retired people manage to live comfortably on such a low income.

I understand most people probably spend less in their retirement years as opposed to their working years due to mortgage being paid off etc however the drop in annual income most be hard to deal with especially those on high paying salaries.

Some statistics even say that a lot of working age people with DC pensions have a pension pot less than 100k which isn’t much considering the rise in average life expectancy.

 

[najaB]

Giving pensions (private and workplace) generally only payout a very small amount eg. £10k a year going up to possibly £20-25k at best how do retired people manage to live comfortably on such a low income.

As you pointed out, most people had (until recently at least) relatively low expenses due to any mortgage being paid off, children having left home and no commute to work to pay for.

Hopefully they will also have some income other than their pension pot - e.g. bonds or investments.

Using my parents as an example, my mother has both her State Pension and a private pension through work, along with some bonds that she bought in her latter working days. My father has his Army pension and State pension (no substantial workplace pension as he changed jobs quite frequently after leaving the army).

They are able to cover all their expenses, go on a cruise every couple of years and have enough to still treat themselves to the things that they want.

 

[jfollows]

I decided to retire when I worked out that I could ensure a retirement take-home income of 2/3 of my working income and essentially maintain the same standard of living on it. One third of my take-home income when working had gone towards things that stopped when I retired, including pension contributions of course but also commuting costs and other things.
Mind you, I'm not living off £10k a year so I'm not answering the question myself. Other than to say that I made a point of putting money into pensions from the age of 30 to ensure that I could afford my retirement in due course, and I was both wise to do so and lucky to be able to.

 

[Snow1964]

I have recently retired early due to being made redundant, so probably qualified to offer an answer.

Generally can draw company pension anytime from 55, but get reduced amount each month. But can also take 25% as a tax free lump sum, with reduced amount each month.

In mine the reduced amount each month of taking lump sum would have taken 27 years to equal the lump sum payment. So taking lump sum made sense, as will get state pension in 9 years (at age 67). Have spent some on new kitchen and new furniture, some of lump sum is still in bank for future.

Now need to pay about £2500 for wife's NI top up (to cover part qualifying years), has to be done by March when rules change. Basically if have 35 years will get £185 a week new State pension. (In our cases nearer 39 years as we had many contracted out years), the incomplete years means pension gets pro-rated, but only costs about £800 per year (so if you live more than 3 years after starting pension, get more back than it costs)

So having replaced few things around house, no mortgage, it is fairly easy to live on our company pensions until age 67 when the £300+/week (for two) state pension kicks in. Those retiring before 2016 got old scheme that sounded like it paid less, but had lower retirement age.

One thing that is slightly annoying is that various admissions (and even the senior railcard) have different ages for discounts for pensioners. No one seems to offer it to me (at 58), many do age 60, some are as high as 65, but no one seems to use state pension age of 66 (will be 67 by time I reach it) as a threshold.

So really if you can afford to retire depends on if you can make the max 25% lump sum last and be an income top up to your private and company pensions until you start to receive state pension and get the extra £185/week.

How much would depend on circumstances but £1000/month each for a couple is doable, as each get that tax free now the income tax threshold is over £12k per year.

 

[DelayRepay]

My dad was very lucky in that he was in a final salary scheme. He'd paid his mortgage off years before he retired, and he'd been saving since me and my sister left home. So he was in a good position. He's not with us now but my mum inherited the survivors pension (two thirds of dad's pension I think) and, along with her state pension she lives a happy but not extravagant life. If need be there is the option to downsize her home to free up more capital.

What they did, which in hindsight was clever, was cut back on holidays and 'treats' for the last few years they were working, to build up savings and also pay for a couple of 'big jobs' e.g. replacing the windows and doors to try to minimise large expenses in retirement.

However I do think we're facing a timebomb. Final Salary schemes are a thing of the past, and there are a lot of people who are making only the minimum required contribution to a Defined Contribution scheme. At the same time, these people may have mortgages that last longer due to the way house prices have increased, or may never achieve home ownership. I guess those who don't own a home will get some kind of help through housing benefit or similar.

But, I would not wish to have to survive on the state pension alone. It is probably doable but it might be quite a miserable existence.

 

[najaB]

I guess those who don't own a home will get some kind of help through housing benefit or similar.

I'd expect so. Not to mention that housing prices/rents are likely to collapse in the next few years.

 

[jfollows]

I have a final salary scheme pension which I'm going to start taking at its pension age of 63 in 2024, and a second final salary scheme pension which I'm going to start taking at its pension age of 65 in 2026, the former being from IBM which has long dispensed with them and the latter from the UK civil service which hasn't (yet).
Both these made it easier for me to make decisions given that the risk is on the pension fund owner and not on me - so I agree that their passing makes it harder, however there are some benefits to defined contribution pensions in some ways which don't outweigh them such as ability to pass on money if you die before it runs out.
But the £1m figure may appear as a vast sum for some people, and an annoying limit to others, but seems to me as a good starting point for a wealthy pension. It's more than is needed to live off though, I'm sure.

EDIT It's already been noted, it's really important on housing costs as well, someone who started out with a mortgage probably ended up with outright ownership of a property, but someone who has always rented will remain with a much more significant outlay on housing when retired, as a generalisation. People of my age (61) didn't find everything easier when we were younger than today's younger people do, but getting on the "housing ladder" certainly was - my first house was something like £24,000 in 1986 and I felt that it was expensive compared to the prices older colleagues had paid for their houses a few years earlier, but wisdom of hindsight tells me I was relatively fortunate nonetheless.

 

[spyinthesky]

My mother (91) has only a state pension and a ton of old buttons but she manages quite easy and is always happy.

 

[jfollows]

I think I would say, not just based on my experience but reinforced by it, the old yardstick for defined contribution benefit pensions was something like two thirds of final salary at retirement age assuming enough qualifying years of service, and that seems about right to support an "equivalent" standard of living in retirement.
It was certainly the calculation that I made when I decided to retire rather than look for another job - I'd been ill and before that I'd been planning on quitting and going elsewhere, but I hadn't made much progress with my plans when I was ill, and once I recovered I worked out it was simpler to retire on 2/3 salary.

 

[DelayRepay]

I'd expect so. Not to mention that housing prices/rents are likely to collapse in the next few years.

Indeed but basing retirement plans on a possible house price crash seems unwise. Without turning this into a house prices debate, people have been predicting that the bubble will burst for over a decade.

 

[najaB]

Indeed but basing retirement plans on a possible house price crash seems unwise. Without turning this into a house prices debate, people have been predicting that the bubble will burst for over a decade.

Oh, it goes without saying that you don't plan on a crash. Prepare for the worst case and be pleasantly surprised if things turn out better.

 

[Xenophon PCDGS]

I am a widower of 77 and am in the fortunate situation of having an excellent senior staff pension from the consultancy that I retired from in 2010. plus the international investments I hold and the annual bonuses that I accrued in my position of Senior Head of Projects that were all put into various financial products by my brokers. I sold the 18th century 6-bedroom property on the rural borders of Prestbury and Mottram St Andrew in the "Cheshire Golden Triangle" that I bought in 2004 and bought the current brand-new 5- bedroom detached property on the borders of Handforth and Wilmslow in 2020 to ensure my wife would be nearer to the sources of medical care, but the following year she went into a nursing home and died there.

 

[MattA7]

Quiet a few good responses. I think I was more imagining the drop in one’s income must be very difficult to adjust to.

For example if you retire from a career with a high salary say down to £10k a year that must be very difficult to get used to even if you do no longer travel to work.

 

[Snow1964]

Quiet a few good responses. I think I was more imagining the drop in one’s income must be very difficult to adjust to.

For example if you retire from a career with a high salary say down to £10k a year that must be very difficult to get used to even if you do no longer travel to work.

Unless you are very stupid about planning for retirement, anyone with a good salary should be putting fair amount into a pension (you would be giving away 40% in income tax instead, so unless you voluntarily like paying extra tax, why do so)

Years ago, accrual rates of 1/60th were common, so if worked 40 years, got 40/60 of final salary. Then 1/80 rates became common so could still retire with nearer half pay.

Nowadays, many don't put anywhere near enough aside, tend to need at least 20% of Gross salary going into a pension if you want to be very comfortable, (20% could be 10% employer & 10% employee). But if you skipped contributing for few years need to be more like 25-30% of Gross salary. If end up with bad pension then it will be more living like a pauper.

No one can predict the future, but I wouldn't rely on Government to keep subsidising pensioners housing or heating in decades time unless they have downsized to one bed retirement flats.

 

[duncanp]

One thing you need to do is work out a personal budget, which will be different for everyone.

This involves writing down all your outgoings, which will in turn depend on what you want to do after retirement.

For example, you may not need the car to go to work, or pay for a season ticket on the train, but what will you be doing with your leisure time, and how will that affect your travel costs. Someone who is not yet eligible for a free bus pass and/or does not live near adequate public transport will need a car more than someone who lives in a city next to a frequent bus route.

Then you need to look at your income now, and in the future. How much state pension will you get and when? Have you got any savings? Do you want to stay in your current house, or do you want to downsize and release some equity?

Also you need to consider your health and mobility. Do you think your current accomodation will be suitable for you in 5 or 10 years time, when your health and general mobility may have declined due to old age? Can you adapt your house by, for example, installing a stairlift or a disabled friendly bathroom?

Another factor in all of this is your relationships? Do you have a wife/husband/partner, and what are their retirement plans and finances like? Do you have children who still live with you? Would downsizing to a smaller property enable you to give your children some money for a deposit that will enable them to buy a property of their own?

The drop in income is not necessarily difficult to adjust to if you have a corresponding drop in outgoings, or you have some savings that can tide you over until your partner retires and/or you get you state pension.

So there is not one easy answer to the original question posed by the OP.

What is an adequate income for a single person living in a one bedroom flat may not be adequate for someone living in a house with a partner to support, or who has complex extra needs due to disability, or who still needs to drive due to lack of public transport.

 

[Bald Rick]

Giving pensions (private and workplace) generally only payout a very small amount eg. £10k a year going up to possibly £20-25k at best how do retired people manage to live comfortably on such a low income.

There’s lots and lots of people out there with pensions of well over £25k. Not least almost anyone who has had a full railway career!

My retired parents have a higher disposable income than I do; they have no mortgage, no pension contributions, no NI to pay, etc. I am by no means low paid, but I rather shocked my Dad when I explained how much I have each month to pay the bills and feed the family, after tax, NI, pension contributions and mortgage are taken care of.

For example if you retire from a career with a high salary say down to £10k a year that must be very difficult to get used to even if you do no longer travel to work.

if you retire from a high salary down to £10k then your financial planning has been appalling.

 

[Howardh]

I have a large lump sum of savings, in the building society now getting a decent interest rate. I assumed that I could turn a lot of that into an annuity given decent rates, but with it being capital rather than pension lump sum it's not so easy.

Found out there are whole life annuities using capital but when I last looked rates were very poor.

But that aside, when I reach 66 I should be getting £19k from three pensions including the state, plus a £2k in dividends, then interest from those savings.

With no mortgage or other commitments I'm hoping to be OK, especially if power bills eventually fall!

 

[swt_passenger]

I‘ve noticed recently that many organisations (including the DWP website) describe the current standard state pension as £185.15 per week.

What they seem to gloss over a bit is that if for most or all of your working life prior to 2016 you were paying NI contributions at the contracted out rate, like I did, your “full rate“ pension will be somewhat lower. I have the 35 years contribution record, and my state pension started in 2021 when I was 66 but it is currently about £155 a week. There‘s about £1500 pounds gap between mine and the usual figure you’ll see in pension guides, news articles, etc etc.

What I’ve never found yet is an online calculator that explains exactly how the reduction is calculated

I’m not criticising this reduction, as that‘s what the NI system allowed pre-2016, and with my other pensions I do just fine, but I think it isn’t publicised as well as it could be.

 

[Bishopstone]

A generalisation, but expenditure tends to reduce at 80+ if not before, because health issues preclude far-flung foreign holidays and the car is used only locally, if it all, so doesn’t need to be upgraded every five years. Enthusiasm for big home improvement projects also starts to wane, by this stage.

With her interests of Coronation Street, whisky, and volunteering in a charity shop, my grandmother lived very contentedly on the state pension alone, for several decades, but she rarely travelled more than five miles from home.

 

[ChrisC]

I’m sure that you will be OK. You are in a very similar situation to me and I am finding it more than enough. During my last few years at work I was earning just over £35k. Eight years ago I retired early when I was 58. Because I retired early my teachers pension was not as much as it would have been if I had worked a few more years but I still got a reasonable lump sum and a pension of just above £14k. Over the last 8 years with pension increases this is now close to £15k. I also have quite a significant amount in savings, mainly in cash ISAs in building societies.

I live on my own, in a 3 bedroom house, with no mortgage to pay. I do have a car, which I wouldn’t like to give up, as I live in a village which has no evening or Sunday buses. During these first 8 years I’ve found that I have had more than enough, not just to survive, but to live quite a good lifestyle. I try to go away for a few days every month, staying in mid range hotels, I regularly go to the theatre and eat out with friends and can afford to do lots of my food shopping in Waitrose!

Now I have reached 66 and get my State Pension, that now takes me to just over £20k after tax. Fortunately, although I don’t like the high energy prices and increases in food prices, it is not really any worry to me. I wouldn’t want to start spending all of my savings because you never know what the future holds regarding health and care needs etc. However, although a nice concern, it does concern me that I have not so far had very much need to dip into my savings. I am now 66 and can’t take it with me.

I’m very fortunate, but I did work hard for 36 years with hardly any time off work. However, I don’t know how anyone who doesn’t have a work pension or any savings could survive just on the State Pension.

 

[brad465]

Rising interest rates has apparently been making pension/retirement annuities more attractive again. If I've understood right though one needs a lump sum to invest in it, and then that determines how much you get in income, and how long you live for depends on whether you break even or not.

 

[Cdd89]

One issue about having savings/investments in retirement and intending to draw down on them is it involves some element of planning based on when you are likely to die. That’s not a lot of fun, and has to be calculated conservatively in case you are unlucky (!) enough to live on the long side, so I can actually see the attraction of a lifetime annuity where someone else is placing the bet (and with more confidence since they have the law of large numbers on their side), even if on average it’s a poor deal.

 

[duncanp]

One issue about having savings/investments in retirement and intending to draw down on them is it involves some element of planning based on when you are likely to die. That’s not a lot of fun, and has to be calculated conservatively in case you are unlucky (!) enough to live on the long side, so I can actually see the attraction of a lifetime annuity where someone else is placing the bet (and with more confidence since they have the law of large numbers on their side), even if on average it’s a poor deal.

That is what I chose to cash in my pension pot and buy an annuity.

That way, I don't have to spend the rest of my life worrying about how my pension pot is doing, and getting all worked up every time the FTSE starts falling, or there is some bad economic news.

If I lose the "bet" on how long live (ie. the cost of the annuity is less than the total amount of payments I receive) then it is not my problem, as I will be pushing up daisies in the local cemetery.

 

[AM9]

I worked continuously for 44 years, retiring at 61. I had a decent DB pension and key to the decision was how much I needed for the years ahead 61-65 when the state pension with SERPS kicked in.
I decided to take the 30% tax free lump sum and invest that as a back up if I couldn't make ends meet on the DB pension before the state scheme kicked in. As it turned out, not only did I not need to touch that, I found that my outgoings meant that the current account kept building up, - so I bought ISAs every year.
The key drivers of the lower than expected outgoings were:

no mortgage (we paid it off just before the 'credit crunch' in 2006)​

much lower car mileage owing to walking, using ENCTS pass and optimising car journey times​

shopping for basics at leisure, (the local Waitrose is less than 3 minutes walk from home so I gained a working knowledge of when the bargains appeared)​

having time to do some home maintenance tasks myself instead of paying others​

All together, I had an improved lifestyle at a lower cost. The consequence was a wardrobe full of suits, Lewins shirts and ties, none of which seem to come out except for attending funerals.

 

[Simon11]

That is what I chose to cash in my pension pot and buy an annuity.

That way, I don't have to spend the rest of my life worrying about how my pension pot is doing, and getting all worked up every time the FTSE starts falling, or there is some bad economic news.

If I lose the "bet" on how long live (ie. the cost of the annuity is less than the total amount of payments I receive) then it is not my problem, as I will be pushing up daisies in the local cemetery.

But annuities are a really poor deal and bad financial management. In majority of cases you will be worse off.

 

[AM9]

But annuities are a really poor deal and bad financial management. In majority of cases you will be worse off.

I know of some retirees who spend a lot of their time worrying about whether they are getting the last penny from every investment t that they have. They get depressed if they miss anything. Sometime, peace of mind is much more valuable than chasing every bit of money.

 

[jfollows]

But annuities are a really poor deal and bad financial management. In majority of cases you will be worse off.

Yes, but with respect it's a subjective and personal decision driven by many things including your adversity to risk, complexity and uncertainty. As long as they're not mis-sold and the recipient is aware of what he/she is getting for the money, they're a valid option. I'm with you, I wouldn't touch one with a bargepole, but that's me and my attitude to risk and reward, and for some people - not least contributors to this thread - they work.
I have an older friend who I occasionally give financial advice to when he asks for it, I make it clear that it's my opinion and he often doesn't take it, and then sometimes I even say "I told you so" without labouring the point, but that's all I can do.
And, yes, this friend is one of the people AM9 describes - I advised him to put some of his money in equities and then he kept on telling me how much his investments had gone up or down by. I told him I didn't want to know and my advice to him was to stop looking and get on with life, which I think he's now taken!

 

[DelW]

I‘ve noticed recently that many organisations (including the DWP website) describe the current standard state pension as £185.15 per week.

What they seem to gloss over a bit is that if for most or all of your working life prior to 2016 you were paying NI contributions at the contracted out rate, like I did, your “full rate“ pension will be somewhat lower. I have the 35 years contribution record, and my state pension started in 2021 when I was 66 but it is currently about £155 a week. There‘s about £1500 pounds gap between mine and the usual figure you’ll see in pension guides, news articles, etc etc.

What I’ve never found yet is an online calculator that explains exactly how the reduction is calculated

I’m not criticising this reduction, as that‘s what the NI system allowed pre-2016, and with my other pensions I do just fine, but I think it isn’t publicised as well as it could be.

It's true that the quoted "standard" state pension is only applicable to people with a specific contribution profile, but it can vary both ways.
I had periods contracted out, but also periods in the 1980s and 90s when I (and my employer) paid into SERPS* and SSP*. As a result of that, and the fact that I deferred taking my state pension for 2 & 1/2 years (as I was still working and didn't need it), my state pension is now just under £280 per week. I became eligible in 2017, so that's on the present scheme not its predecessor.
I agree that it's quite opaque how that is calculated though. The DWP website will tell you in advance what your state pension will be, but AFAIK there's nothing to show how that's been been derived.
*State Earnings Related Pension Scheme and State Second Pension

 

[dk1]

I hope to be retired by the time I’m 56. I don’t ever consider my state pension. When it does come when I’m 66 or 67 (not sure which) I’ll probably treat it as beer or holiday money.

 

[S&CLER]

The main thing is to start planning early. I took out a long term with-profits life insurance policy when I graduated, and kept it up until maturity 42 years later. I also paid the maximum allowed into self-employed retirement annuities and their successors, personal pensions. I recall that this was 17.5% of net relevant earnings for years, and then increased to about 40% as I approached my sixties. Before I reached 65 I converted all the equity-linked funds into cash to avoid any sudden falls in the market. The main disappointment in my retirement planning was that I was one of those who had a guaranteed annuity rate with Equitable Life (11.75% in my case, with the nil-return of fund on death option if I died before pension age; this is only suitable for those with no dependants). Fortunately EL was only one of six private pensions I took out to spread the risk. I took the full allowance as a lump sum when the time came to buy annuities, so I have a good cushion of cash left as a reserve and for investment. And of course I shopped around to get the best rate for annuities (Legal and General in 5 cases, Just Retirement in the other). Inheriting my parents' house was a great help of course. And I can still do occasional work if I feel like it