The annual cost of a comfortable retirement now exceeds £60,000

The cost of a comfortable retirement has increased, according to new figures from the Pensions and Lifetime Savings Association (PLSA).

Two-person households will now need £60,600 a year (up by £1,600), while if you live alone you'll need £43,900 (up by £800). 

The increase reflects the impact of inflation since the PLSA last published its retirement living standards in 2024.

Meanwhile, the cost of a minimum retirement lifestyle has fallen slightly, largely due to lower energy costs. 

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How much you'll need in retirement

The PLSA's three retirement living standards are designed to give people a better idea of how much they'll need in retirement for a 'minimum', 'moderate' or 'comfortable' lifestyle. 

Here are the levels of annual expenditure needed for each standard:

Although the state pension at its full level of £11,973 will go most – if not all – of the way towards the minimum standard, you'll need to rely on private pension savings to achieve the income needed for a more moderate or comfortable living standard, where your budget can stretch to more holidays and leisure activities. 

It's worth noting that the PLSA's figures do'ot include rent or mortgage costs, as currently the majority of retired people are no longer paying them. But if you’re likely to still face housing costs in retirement, you’ll need to factor these in on top.

• Find out more: how much will I need to retire?

The impact of inflation on retirement costs

The latest figures show that higher inflation has hit retirees, although this has partly been offset by a drop in energy costs. 

Across all retirement living standards, the amount spent on energy in the home for heating and cooking has fallen by more than a quarter since the 2024 update.

Two-person households at the minimum level now save £12.44 a week on their fuel budget, while one-person households save £8.82 a week. At the moderate and comfortable levels, weekly savings are £16.74 a week for two-person households and £15.38 a week for those living alone.

The fall in the annual expenditure for the minimum living standard reflects these lower energy prices and spending less on clothes and footwear, takeaways, taxis and charity donations – although spending on rail travel has risen.

In contrast, the moderate and comfortable standards have increased, due to inflation impacting some spending categories, although lower energy prices have helped keep costs down.

What you’ll need to save in your pension

Once you have an idea of the annual retirement income you're aiming for, you'll need to think about how much you'll need to save in your pensions to generate this amount.

We've calculated how much you would need in your private pensions (on top of the full state pension – currently £11,973 a year) to reach the moderate living standard, depending on whether you access your money via drawdown or an annuity:

To meet the annual income for a comfortable retirement if you live alone (£43,900), you'd need a pot of £609,270 if using drawdown or £505,000 if buying an annuity. For a two-person household to meet the comfortable target (£60,600 a year), these figures are £697,500 and £578,000, respectively.  

These are ‘ballpark’ figures based on a 20-year retirement, but there are many factors that could affect the amount you need, including annuity rates, investment performance (if using drawdown) and how long you live for.

• Find out more: your options for accessing your pension

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The challenge for retirees living alone

The annual expenditure and pot sizes required to achieve these amounts might seem high for one-person households compared with those for two-person households, but this reflects the fact that many costs – such as energy bills, broadband and home insurance – are virtually the same even if you live alone. 

Not being able to share costs with a partner or someone else pushes up the price of retirement. Couples also often benefit from higher combined pension income in order to reach their desired retirement lifestyles. 

Building up your retirement pot

The earlier you can start saving for retirement, the better, as this money will have more time to benefit from investment growth.

If you're in a workplace pension, you’ll get employer contributions to boost your pot. These are set at a minimum of 3% of your earnings, but your employer may pay more than this.

Tax relief also helps to boost your contributions. This means that for every 80p basic-rate taxpayers add to their pension, the government will add a further 20p. 

Higher and additional-rate taxpayers can claim back a further 20p and 25p, respectively. In most cases, you can’t receive tax relief on pension contributions worth more than your annual earnings or £60,000, whichever is lower. 

The state pension can supplement the money you've saved in private pensions. It's currently worth £11,973 a year at its full level, although some people will receive less than this. You’ll have to wait until the age of 66 to claim it.

• Find out more: how much is the state pension?