A typical household in the UK will need funds of £413,000 and an individual living alone £326,700, according to the 2008 “Cost of Retirement” report by Life Trust Insurance.
The report, written by the CEBR (The Centre for Economics and Business Research) for Life Trust, provides an objective forecast of the amount of money a person would need to fund a retirement in the UK if they were to retire at 65.
It warns that people need to factor in increasing longevity when planning their retirement finances, with the cost of retirement for someone who lives to 100 soaring to £708,500.
The report also highlights that while current predictions of life expectancy are 85 for a man and 88 for a woman, these are set to rise significantly.
The averages alone are deceiving as they do not highlight the real chances of a person reaching an advanced age. For example, someone who is 55 today has a one in four chance of reaching 95 and a one in 10 chance of surviving to 100.
Similarly, someone who is 35 today has an almost one in three chance of reaching 95 and a one in seven chance of reaching 100. Clearly, for every extra year, there will be extra expenditure.
The cost of retirement findings are based on a long-term forecasted inflation rate of 2.3 per cent, but the research warns that if inflation were to remain at around today’s level, the cost of retirement would rise to £1 million for the average person living to 100.
Taking a more extreme scenario, the report also highlights that if inflation were to increase and hit the 4.6 per cent level, the cost of retirement would reach £1.3 million for those who are expecting to receive a telegram from the Queen.
The retirement spending gap between rich and poor for those living to advanced ages is over £1 million.
PARTYers (Pensioners in Active Retirement Travelling like Youngsters) in the top 20 per cent of income earners need on average £1.55m to fund their retirement years, compared to the BUS-PASSers (Buy Utilities on State Pensions, And no Surplus Savings) in the lowest 20 per cent who will need only £448,500.
Retirees with an average income, or GOLFERS (Getting Older, Limited Funds, Eeking-out Retirement Savings), would need £708,500.
Andy Briscoe, CEO of Life Trust, says: “People are living longer, healthier lives. This is great news but only if people have the finances in place to really enjoy their post-career years. The combination of rising life expectancy and the impact of inflation over time can have huge financial implications, and this report allows us, for the first time, to see the scale of these trends.
Age 92 is the most expensive year of retirement. Retirees’ spending differs greatly across their retirement years, with the latter stages of retirement being the most expensive. The annual cost of retirement for an individual peaks at 92 because at this age, because he or she is likely to be in need of expensive long term care, either at home or in a nursing home.
For those who dream of early retirement and stop work at age of 50 will need an additional £373,000, or around £25,000 per year, to fund their retirement.
To find out your chances of reaching an advanced age visit www.longevitycalculator.co.uk
To see what your pension fund will buy you in the form of an annuity, visit
http://www.defaqto.com/consumer/pensions.aspx
Posted by Pamela Atherton
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