Predictable security, or flexible opportunity
When making your decision, you need to consider whether you prefer the comfort of knowing that you will have a regular income or the flexibility to withdraw funds according to your needs.
You will also need to think about the level of risk you are comfortable with, and your ability, desire and availability to manage any investments throughout your retirement. Whilst managing your investments may give you the opportunity to grow your retirement savings, they could also be unpredictable and fall in value.
How much money is enough?
How much is enough to live on in retirement is an interesting question. Some of your costs will reduce, like not having to travel to work, but you’ll have more leisure time and will probably want to spend more on doing the things you enjoy.
The Pensions and Lifetime Savings Association (PLSA) published the Retirement Living Standards to show you what life in retirement can look like at three different levels of income and what a range of common goods and services would cost for each level. The amounts shown below are yearly and before tax (Gross).
Minimum Retirement income
- If you’re single:
- £12,800 a year
- For a couple:
- £19,900 a year
Covers all your needs, with some left over for fun
Moderate Retirement income
- If you’re single:
- £23,300 a year
- For a couple:
- £34,000 a year
More financial security and flexibility
Comfortable Retirement income
- If you’re single:
- £37,300 a year
- For a couple:
- £54,500 a year
More financial freedom and some luxuries
These are just a bit of a starter for 10 if you like, you can read more on the PLSA website: retirementlivingstandards.org.uk. Everyone’s actual needs will vary. If you fancy doing a bit of your own budget planning, you can try out the minimum income calculator: minimumincome.org.uk or the more in-depth budget planner from the Money Advice Service: moneyadviceservice.org.uk/en/tools/budget-planner.
Please note: these amounts could fund this lifestyle for people living outside London. See the detailed information on the Retirement Living Standards website for more information.
How long might you live?
Knowing how long you might live is important in helping you know how long your retirement benefits may need to last, especially if you’re considering the drawdown or cash options as you’ll need to make sure the money lasts as long as you need it to. Improved healthcare, working conditions and a reduction in smoking rates have all contributed to an increasing life expectancy from generation to generation.
When making your decision, you should consider your spending needs for however long you think you’ll live. This can have quite an impact on how you choose to take your benefits and what you leave behind for any dependants. If you’re considering the drawdown option, you’ll need to make sure your money lasts as long as you need it to.
The National average for a typical 65-year-old, in good health, as at January 2022 suggests they could expect to reach an age of:
So, if you retired now at age 65, you could live for at least 20 years after that. That’s 20 years of paying for the things you’ll need and want.
But we’re not all ‘typical’, it's possible you could live a shorter time or much longer than this. In fact, there’s at least a 5% chance a 65-year-old retiring now could live to 100 so they’d need to manage their money wisely! Here’s a breakdown of percentages to give you some more idea.
| A 65-year-old woman retiring now has | A 65-year-old man retiring now has | ||
|---|---|---|---|
| A 65-year-old woman has a 75% chance of living to | 87 | A 65-year-old man has a75% chance of living to | 85 |
| A 65-year-old woman has a 50% chance of living to | 94 | A 65-year-old man has a50% chance of living to | 92 |
| A 65-year-old woman has a 25% chance of living to | 98 | A 65-year-old man has a25% chance of living to | 96 |
| A 65-year-old woman has a 5% chance of living to | 100 | A 65-year-old man has a3% chance of living to | 100 |
*Data source: Office of National Statistics (ONS 2021)
Your other pension savings
If you’ve worked for other employers, the chances are you may have other pension savings in other pension plans. Now’s the time to dig through your paperwork and find out what you may be entitled to elsewhere, to give you a view of your total retirement income. If your other sources of income provide you with financial security, you may be able to take more risk with your Plan savings. If this is your main or only source of income, you may want to be more cautious.
If you need help tracking down any old pensions, use the website here: gov.uk/find-pension-contact-details. You should also find out more about the State Pension and any benefits you could be entitled to.
Tax and allowances
When you are deciding how you want to use your pension savings, it is important to consider the tax you would pay on the different options.