Don’t underestimate the cost of living in retirement
How much money are you planning to spend in retirement?
It’s an important question when you’re planning for the future, as the cost of living in later life can make the difference between having enough and running out of money.
According to some new research, higher than expected living costs in retirement are resulting in people having to make changes to their retirement plans or their budgets.
The findings are part of the annual Global Investor Study from Schroders, which looked at the financial habits of more than 22,000 people around the world, including more than 1,000 people here in the UK.
The study found a significant gap between what people expect their life will cost in retirement and the reality of retirement living costs.
It found that the average non-retired person in the UK is expecting their living expenses to account for 38% of their annual retirement income. This is in stark contrast to the reality; those living in retirement reported spending 53% of their retirement income in living expenses.
It was a similar picture in the rest of Europe, where non-retired people expected to spend 35% of their retirement income on living expenses. The reality for retirees in Europe was expenditure equivalent to 50% of retirement income.
Globally, non-retired people expected to spend 34% of their retirement income on living expenses, with the reality of spending 49%.
It’s important to have realistic expectations about the cost of living in retirement, to allow you to save enough during your working lifetime.
Lesley-Ann Morgan, Head of Retirement at Schroders, said:
There is a real danger that people globally are underestimating their basic living expenses and the level of income they will need to live comfortably in retirement, particularly in the current environment of low returns and increasing inflation.
There is no magic wand for savers. To avoid facing challenging financial circumstances on retirement, they need to recognise the need to start saving as much and as early as possible.
Leaving retirement saving until you are nearing your 50s and 60s is likely to be too late to make up a savings gap.”
As part of the financial planning process, we work with our clients to help them understand a likely level of expenditure in retirement.
Once this spending level is understood, we can tailor a retirement savings plan enabling our clients to reach their own personal target.
Do get in touch to chat about the cost of living in retirement and how you can make sure you have what you need for later life.