The Retirement Newsletter: How much?
Issue Number: -2 — An alarming jump in the cost of retirement
Welcome
Welcome to issue -2.
This week, I am looking at what appears to be an alarming jump in the cost of retirement.
The cost of retirement
OK, first off, I want to say that I am not a financial advisor. I am writing about what I have read over the years about money and preparing to retire. This is not financial advice.
Recently, I came across a report at Retirement Living Standards with some quite startling numbers for the cost of retirement.
I’ve written about the cost of retirement quite a bit, and the last time was in issue -24 — Another pension and retirement wobble — where I was worrying about my pension income and what sort of lifestyle I would have in retirement.
If you have followed my newsletters for some time, you will know I have three definitions of retirement lifestyles. I took these definitions from an original article in Which? in May 2021 — How much will you need to retire?.
The three levels of retirement are:
Essential — the least amount of money you need to survive. To live and get by. Admittedly, it’s not the most comfortable of retirements, but you are retired and have some freedom, albeit limited by money. Being retired at this level will be challenging. You may have to top up your pension with a part-time job.
Moderate — a comfortable retirement. A retirement where you are not overly limited by money. A retirement where you can travel and do things you want to do.
Luxury — a retirement where money isn't a serious concern. You can't go mad, but you can afford some nice holidays and have a very comfortable lifestyle.
From my original article in issue -125 — How much money will I need for an Essential, Moderate (Comfortable) or Luxury retirement? — I improved my maths in issue -119 — How much do you need to retire? The maths! — and came up with the following figures of gross income for the different levels of retirement comfort:
Essential — Gross, single: £13,800; gross, married: £21,100
Moderate — Gross, single: £22,600; gross, married: £32,900
Luxury — Gross, single: £40,200; gross, married: £55,000
The Retirement Living Standards article gives the net (post-tax) numbers for the levels of comfort in retirement as follows:
Essential — Single: £14,400; married: £22,400
Moderate — Single: £31,300; married: £43,100
Luxury — Single: £43,100; married: £59,000
And it doesn’t look good. In fact, it is worse than it seems, as the figures in the article are net, and we need gross as pension income is taxed (but you don’t pay National Insurance on it in the UK). So what are the gross numbers?
As the name suggests, the UK Government Income Tax Rates and Personal Allowances website will provide information about your tax liabilities in the UK.
From the site, at the time of writing (March 2024), the personal tax allowance is £12,570, and the tax banding is:
Personal Allowance Up to £12,570 — 0%
Basic rate — £12,571 to £50,270 — 20%
Higher rate — £50,271 to £125,140 — 40%
Additional rate over £125,140 — 45%
These figures haven’t changed, apart for a drop in the amount at which ’additional rate’ starts, since I last looked in October 2021.
If I factor in tax on the Retirement Living Standards numbers to give a gross amount, I get:
Essential — Gross single: £14,800; gross married: £22,400
Moderate — Gross single: £35,000; gross married: £46,700
Luxury — Gross single: £49,200; gross married: £65,000
In the above, for married, I have assumed that two personal tax allowances can be applied, that is, two pensions combined. Also, for the “luxury married”, I have not factored in the higher tax rate for the income over £55,271.
So, to me, this appears to be a significant increase in the amount of money needed:
Essential — Gross single: £14,800 (originally £14,400; 3% increase); gross married: £22,400 (originally £22,400; no increase)
Moderate — Gross single: £35,000 (originally £31,300; 12% increase); gross married: £46,700 (originally £43,100; 8% increase)
Luxury — Gross single: £49,200 (originally £43,100; 14% increase); gross married: £65,000 (originally £59,000; 10% increase)
While the ‘Essential’ retirement has not seen a significant increase — 3% for a single person — the ‘moderate’ and the ‘luxury’ bandings have seen an increase of 8 to 14%. That is a lot.
The Retirement Living Standards article does an excellent job of breaking down the figures to show what you will be spending your money on. It makes for an interesting read, and I encourage you to look at it.
The above changes in the amounts needed for the various levels of retirement comfort are quite sobering.
For me, it has reinforced the need to develop additional revenue streams to help me through my early retirement years before my State Pension kicks in.
Please note that I am not a financial advisor. I am writing about what I have read over the years about money and preparing to retire. This is not financial advice.
Travel — Nostalgia Corner
From the Cameron Highlands in Malaysia (see issue -2.5: Skiing — back on the slopes and other old hobbies), I moved on to Australia:
Australia — Driving North from Perth to the Pinnacles — After over 20 years of visiting this part of Australia, I head off to see the Pinnacles
Australia — Seashell Café, Cervantes, WA 6511, Australia — Coffee and carrot cake by the sea. Lovely.
Australia — Stromatolites and Lake Thetis, Cervantes, WA 6511, Australia — Looking back to where it all began. I couldn’t believe I was finally looking at some Stromatolites. (Stromatolites are living fossils dating back some 3.5 billion years.)
Australia — Pinnacles Desert, Nambung National Park, Cervantes, WA 6511, Australia— After over 20 years of visiting Western Australia, I finally saw the Pinnacles, and they were worth the wait — stunning.
Australia — Australian Wildlife — What did I see on my travels?
Next week, I will finish my time in Australia before heading off to Bali.
Useful links
UK Government Website:
Next week
Well, after this week’s dive into the cost of being retired, next week, in issue -1.5, I look at whether I could turn my love of skiing into a side-hustle.
Thanks
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Until next time,
Nick
PS, If you want to contribute something to the newsletter — a story, advice, anything — please get in touch.
Please note: I am not a financial advisor. When I am writing about money and financial matters, it is based on things I have read over the years about money and preparing to retire. IT IS NOT FINANCIAL ADVICE.