Retiree spending falls during coronavirus crisis
Following a survey of 6,300 Which? members, the consumer champion has released its annual cost of retirement results.
It found that overall retiree spending is down 5% on last year and the spending areas with the biggest cuts are those most affected by the impact of the pandemic.
Single retirees have spent a fifth less on extended holidays, while recreation and leisure spending is down by 13% for couples and 14% for singles.
However, retired couples are still spending just as much on groceries and utilities.
How much money do you need for retirement?
Analysis by Which? shows that retired couples need an average income of £17,000 a year to cover spending on essentials such as groceries and bills.
The figure rises to £25,000 when including more spending on leisure activities, and to £40,000 a year after tax for those looking to live a ‘luxury’ lifestyle, including long-haul holidays and health club memberships.
Single person households spend an average of about 70 to 75% of the outlay of two-person households, but only benefit from roughly half of the state pension entitlement and tax-free allowance of a couple.
This puts the income targets for essential, comfortable and luxury spending for single retirees at £12,000, £19,000 and £30,000 respectively.
Which?’s calculations show that once the state pension is factored in, couples need a gross annual income of £3,040 from private pensions to achieve the essential net income target, rising to £11,040 for a comfortable retirement and £29,790 for a luxury one.
For single person households, this equates to £5,020, £13,635 and £27,395.
Four in five of the households surveyed by Which? had income from a final salary pension, providing an average of nearly £22,000 a year.
Couples relying on income from a defined contribution pension (plus the state pension) would need a total pot of just over £169,000 to achieve a comfortable retirement if opting for pension drawdown (assuming growth of 3% a year), or £262,500 for a joint-life annuity.
Jenny Ross, Which? Money editor, said: “The results of our survey provide a detailed picture of the spending habits of people in retirement, which should provide those preparing for it with a better idea about how much they’ll need in their pension pots.
“Perhaps unsurprisingly, the impact of coronavirus has seen retirees cut back on their spending in areas like travel and leisure this year, and there is clearly concern about how the economic instability may affect people’s savings.
“If you’re yet to retire, think very carefully about reducing your pension contributions or opting out altogether, as this could set back your retirement plans.”