£22,500 seen as ideal retirement income by over-55s

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Defined contribution (DC) savers over the age of 55 planning to buy an annuity have suggested that £22,500 is the ideal retirement income, according to research by Canada Life.

This figure would equal the moderate standard of living as identified by the Pensions and Lifetime Savings Association (PLSA) standard of living in retirement, and would require private pensions to generate an income of around £13,161 a year, based on the current state pension of £9,339.

The research found little difference in ideal retirement income by gender, with men identifying £22,900 as the ideal figure, while women were willing to accept the slightly lower amount of £21,500.

However, the value of a saver’s retirement pot had a ‘clear effect’ on expectations, as research found that for those with a retirement value of less than £200,000, £20,000 was the average ideal retirement income, while for those with a pension above £200,000 the figure rose to £28,300.

Commenting on the results, Canada Life’s Director of Retirement Income, Nick Flynn, said, “A generation of savers planning for retirement have relatively moderate ambitions for their ideal incomes.

“Far from splashing the cash, the over-55s are looking for an income of around £22,500, which combines both private savings and the public pension of around £9,339 currently. This requires that the pension and any other savings generate an income of around £13,161 a year.

“At current standard annuity rates, a £200,000 pension could yield around £10,000 a year guaranteed for life, probably more for those who qualify for improved rates and better income due to health or disability. way of life.

“Buying an annuity is an important financial step and an annuity advisor or broker will be best placed to help understand the choices available.”

The research also took into account expectations for standard of living in retirement, revealing that almost half (46%) of respondents expected their standard of living to remain the same in retirement.

In contrast, 36% thought their standard of living would deteriorate and only 10% thought their standard of living in retirement could be improved.

However, twice as many men as women were optimistic about what to expect in retirement, with 12% of men saying they expected an improvement in their standard of living, compared to 6% of women.

Pension values ​​were also found to have a ‘significant effect’ on positivity about living standards in retirement, with 20% of pre-retirees with pensions valued over £200,000 saying they thought that their standard of living would be better, compared to 8%. whose pensions are valued at less than £200,000.

Although one in four (26%) of those with pensions over £200,000 believe their standard of living will drop in retirement, compared to 40% whose pensions are valued at less than £200,000.

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