The Real Cost of Retirement Is Much Lower Than You Think

Ajouté : 2026-05-28

[00:00:00]What is the minimum income that you need in retirement? Well, the answer according to Pensions UK, who are an industry body, say is £13,400 a year for a single person. That's after tax and it is assuming that you own your home outright. So, the full state pension right now is just a touch over £12,500 a year. So, you're about £850 short of even the minimum.

[00:00:24]>> [music] >> But, here's where I part company with the official numbers and I do think it matters. So, before I do, my name's Zac Hussain. I've got over 25 years experience of helping people plan for their retirement. So, Pensions UK, who used to be known as the PLSA, publishes something called the retirement living standards and they break retirement into three levels. So, the minimum is £13,400 a year. Moderate is 31,300 and comfortable is 43,900.

[00:00:55]Now, I agree with the minimum. I think £13,400 does cover your basics. You know, one small UK holiday, no car to run and about £30 a month for eating out. So, that's about £37 a day and the state pension gets you 94% of the way there. Now, clearly, it's not an extravagant lifestyle, but it is livable. But, for me, the moderate and the comfortable lifestyles, well, I think those numbers are just too high.

[00:01:22]And from what I've seen, the vast majority of people I've worked with live very well on a lot less than 31,000. 300 [music] pounds. More single retirees with a mortgage paid off, you know, a decent social life and a couple of holidays a year, I think are spending somewhere closer to around 25,000 pounds.

[00:01:42]>> [music] >> And for a genuinely comfortable retirement, you know, after meals out when you want, a good car, a couple of foreign holidays a year, you're looking at about I think somewhere between 35, 36,000 pounds, not 43,900.

[00:01:57]So, look here. Just look at the difference in this chart. Pensions UK say you need that 31,300 for moderate, but from what I've seen, as I said, most people live well on £25,000.

[00:02:09]That's £6,300 a year less.

[00:02:12]>> [music] >> Which equates to basically needing a pension pot roughly £157,000 [music] smaller than the headline suggests. That's a huge difference and can change your mindset which you can ask the retirement. And on the comfortable side, the gap is even bigger. So, it's 35,000 versus 43,900.

[00:02:32]That's a difference of 8,900 a year.

[00:02:35]I mean, pension terms, it's going to be a lot of money. But, I guess why does that matter? And that is because those Pensions UK numbers, I think, tend to scare people.

[00:02:46]So, someone with a £200,000 pot sees a £31,300 target and basically thinks that they are miles away from a decent retirement. But, at £25,000 a year with the full state pension covering £12,500 of that, your private pension only needs to deliver around £12,500 again. And assuming a 4% withdrawal rate, so the withdrawal rate is basically the rate at which you take money out of your pension pot, that means a pension pot of around £311,000 and not £469,000 the official figures would have you believe. [music] Now, here's what that actually looks like in terms of daily spending. So, Pensions UK moderate is [music] £86 a day. But, as I said, a lot of people I've worked with are retiring or have retired are living well on £68 a day.

[00:03:39]So, for context, the average UK household spends >> [music] >> about £65 a day. So, even at £25,000 a year, you're already slightly above that. If you are currently thinking about retirement, we have a free retirement checklist [music] that will help you think through all the things that you need to be doing and thinking about ahead of retirement. You can go to our website, financialeducation.co.uk, and on the top there you'll see something called retirement checklist.

[00:04:07]So, if you click on that, that will take you to a page where you can download the checklist from. And basically, the checklist itself is called "Are You Ready to Retire?" And within there, there are 10 key areas [music] that you need to be thinking about ahead of retirement. So, all the way from understanding how your retirement income strategy is going to work, how you take out money in the most tax-efficient way, how you transition from work into retirement. Basically, what this document is going to help you do is give you a full action plan and a blueprint to make sure you are fully for retirement. So, for each of those 10 sections, what we do is give you all the key questions you need to be asking yourself and all the actions you should be doing ahead of retirement and also when you should be looking to do it. By the time you get to the end, you should have a blueprint and an action plan that's going to make sure that you are fully ready to retire successfully. And you can access this by just scrolling down to the bottom here, give you adding your name and your email address, and then we'll email you a link to be able to download the document for yourself. And there's another thing, and that's pension credit. And that's another piece to consider in this puzzle. So, if your income falls below £227.10 p a week, you may qualify for pensions credit. And DWP figures show that 760,000 households in the UK who are eligible for pensions credit just don't claim it.

[00:05:27]So, that's basically billions going unclaimed every [music] single year. I think it's an odd one because I think a lot of people just assume they're never going to be entitled to claim it. So, therefore, they never do. When they do go for it and they find out what they can get, >> [music] >> they are pleasantly surprised. And the other thing to remember about pensions is is it's regarded as a gateway benefit, which basically means even if you qualify for small top-up, it opens up a whole myriad of other things such as uh reduce cost for your NHS, uh potentially the uh warm heating, and a whole bunch of other things. Now, just moving back to this, there is a blind spot, I think, in the Pensions UK figures, and probably in in mine, too. That is every one of those numbers assumes that you own your own home outright with no mortgage or no rent to pay. So, if you're renting in retirement, that picture, unfortunately, does change completely. If you had to say 800 pounds a month in rent, >> [music] >> well, that's another 9,600 pounds a year that you need to find, and suddenly the minimum isn't going to be 13,400 anymore. It's probably going to be closer to 23,000 pounds. You see, housing is a single biggest variable in retirement planning.

[00:06:40]Now, this will differ for everyone, but as an example, a retired couple uh paying 1,000 pounds in rent rent needs an extra 12,000 pounds a year just to stay in their home. So, that basically wipes out almost the entire state pension, one of them. And the other thing to watch is the frozen personal allowance. You see, the full state pension is now 12,548 pounds, and the tax-free personal allowance is frozen at 12,570.

[00:07:08]So, that's a gap of just 22 pounds. So, what does that mean? Well, it means that any private pension income, so any savings interest, even a small part-time job, and basically you are straight into paying tax. So, if this is something that you are thinking about, the one thing I do this week [music] is to check your state pension forecast on gov.uk.

[00:07:29]It takes about 5 minutes to do, [music] and it is free, and it'll show you exactly how many qualifying years you have with regards [music] to getting a state pension. You see, people automatically assume that they're going to get the full state pension when they retire, but that isn't the case. You need to have paid national insurance for 35 years or have credits equivalent to 35 years [music] to get the full state pension. And if you have got gaps, each missing year costs you only 907 pounds to fill, but it adds roughly 328 pounds a year to your state pension for life. And that for me is one of the best financial deals in the country. Now, I'd love to know you know what does your retirement actually cost you each month? Is it something you've looked at? Is it something [music] that you have worked out? And if you have already retired, do drop your rough number in the comments below. I think it'll help everyone watching to get a sense of what real life would look like in retirement. So hopefully you found that helpful. If you want more information on benefits etc. you can claim at retirement. For more details you can visit our website which is financialeducation.co.uk.

[00:08:36]Where there's a whole range of related topics uh and access to our other videos. And if you did find this helpful, please do like and subscribe. And if you've got a question you'd like me to answer, do drop it in the comments below and I'd love to answer it in a future video.

[00:08:49]Finally, good luck and goodbye.