A new survey from Annuity provider, LV=, has revealed the formula for a happy retirement.
LV=, formerly known as Liverpool Victoria, surveyed 1,070 people aged 60-65 and found that ‘happiness’ in retirement will cost nearly a quarter of a million pounds, around seven times the value of the average pension pot in the UK.
According to the people who took part in the survey the formula for a ‘happy’ retirement is:
To retire at the age of 65 and live in a detached house, with a garden, in a village location
To spend 364 hours per year with children and grandchildren, whilst spending nearly £250 each year on gifts for them
To spend 312 hours each year and £1,716 socialising
To spend 468 hours each year and £480 on hobbies
To live, close to important amenities and no more than 24 miles away from children and grandchildren
To spend at least 21 days abroad each year on holiday, costing £752
A ‘happy’ retirement
The cost of a ‘happy’ retirement?
The cost of providing a ‘happy’ retirement, can, according to LV=, be broken down into essential living costs plus those necessary to provide all the parts of the ‘happy’ retirement formula.
According to the Office for National Statistics (ONS) essential household expenditure for a single retired person comes in at £7,623 per year. Then an additional £3,197 each year is needed to pay for the ‘happy’ retirement formula, making the total cost of retirement £10,820 per year, per person.
“That doesn’t sound much”
To many people, who have worked in the years leading up to retirement, a figure just short of £11,000 per year doesn’t sound huge, which means two things.
Firstly, it won’t provide an extravagant lifestyle in retirement, secondly, it shouldn’t be too hard to provide.
But it might be harder than it first appears:
- 8% of 60 – 65 year olds, equivalent to over 300,000 people, have no retirement provision whatsoever. These people will have to rely on the State Pension, which currently provides £5,727 each year, well short of the £10,820 needed to provide a ‘happy’ retirement
- Of those people close to retirement who do have a pension, 27% admit to not knowing the value. According to the Association of British Insurers the average pension fund used to buy an Annuity in 2012 was just £33,455. Furthermore, 40% of retirees had less than £15,000 in their pension fund with which to buy an Annuity
- The average pension fund of £33,455 will provide an income of roughly £1,500 per year, even when added to a full State Pension, which not everyone will qualify for, there will still be a significant shortfall of nearly £4,000 per year
- 49% of people due to retire within the next five years have not yet sought financial advice, indicating a general lack of planning, which is likely to be extremely costly
Commenting on the survey, Vanessa Owen, Head of Annuities and Equity Release at LV=, said: “It’s clear from the research that Britain has fairly modest aspirations when it comes to what they feel they need for a happy retirement. And indeed many of the features of a happy retirement, such as time with family and friends, cost no money at all.”
Owen continued: “However, one cannot shy away from the fact that achieving contentment in retirement, as with any lifestyle, does come with a price tag; over two hundred thousand pounds according to the research. It’s never too late to make a difference, but it’s important that people plan for the retirement as soon as possible and also explore all of the options available to them as retirement approaches, so they can maximise their income once their working lives come to an end.” (Source: LV=)
“With people spending longer in retirement one of the challenges is looking at how they fund it. Today’s retirees now have many options available to them at the point of retirement and its important they make the best possible choice, as it will impact them for years to come. Seeking professional advice can put them on the path to a retirement where they have both the buying power and quality of life they desire.”