Two-person households need an average annual income of £26,000 for a comfortable retirement, Which?'s latest research has found.
With the past year altering many people's spending habits or potentially accelerating their plans for retirement, finding out how much money is needed to finance a reasonable standard of living in later life has taken on an increased importance.
Which? surveyed nearly 7,000 retirees in February about their spending to develop retirement income targets for one-person and two-person households. The findings can be used as a guide to how much people are likely to spend and how much they might need to save, factoring in the state pension and tax bills.
Essential: food and drink (excluding meals out), housing payments (mortgage, rent or council tax), transport, utility bills, insurance, household goods, clothes, shoes and health products.
Comfortable: includes the essentials, as well as regular short-haul holidays, recreation and leisure, tobacco, alcohol and charity giving.
Luxury: includes both essential and comfortable, as well as extended or long-haul holidays, health club memberships, expensive meals out, and a new car every five years
Many of the survey respondents in two-person households had spent less on things like recreation and leisure (down by 14%) and transport (down by 10%) this year than they had compared to before the pandemic in 2019. Spending on cars, charitable donations and groceries had all risen by six%.
For single-person households, spending on long-haul holidays and leisure memberships was down by 14% and 9%, respectively.
The full 2021 annual expenditure figures for a two-person household are shown:
Two-person households would need around £442,000 in a drawdown plan to fund the luxury retirement target (£41,000 per year) - or £589,000 if they've taken the full 25% tax-free lump sum available at the outset. If you opt for the guaranteed income provided by a , you'll require an initial fund of around £757,000.
For single-person households, achieving a comfortable retirement would mean a pot of around £192,290 alongside the state pension to get to an annual income of £19,000 via pension drawdown, or £305,710 through an annuity.
For a retirement at the 'essential' level, single-person households would need £77,350 in a pension drawdown or £123,365 to buy an annuity plan to meet an annual target income of £13,000.
The Which? annual retirement income targets for one- and two-person households are shown below:
We've included state pension income in our calculations. A couple receiving the current average amount of £155 each per week will get just over £16,000 a year to add to private pensions.
Pension drawdown figures are based on the savers withdrawing all of their income over 20 years from the age of 65, with investment growth of 3%, inflation at 1% and charges levied at 0.75%.
Which? calling on the government to press ahead with reforms to help provider savers with greater clarity about their pension savings so they can know if they are on track for later life.
The government must move swiftly to introduce long-delayed pensions dashboards that give savers access to all their pensions information - including their state pension - in one place.
Which? believes that the Department for Work and Pensions should also press ahead with plans to shorten and simplify annual benefits statements, but it should ensure consumers are provided with clear information about costs and charges in one simple, personalised figure.
Jenny Ross, Which? Money Editor, said: 'For many people, the events of the past year may have brought the amount of money needed for later life into sharper focus - or accelerated plans to retire.
'Our research shows that most people will need to be putting away significant sums if they want to ensure they can enjoy a comfortable retirement - but many do not have access to the clear and accessible information they need to help them plan.
'The government must move swiftly to introduce the long-awaited pensions dashboard and simplify annual benefits statements to enable people to understand how much they've saved, what this could be worth in retirement and, crucially, extend its proposals to include how much consumers have paid in charges.