State pension warning as over one million risk £2,858 a year shortfall – exact amount you need to save for retirement

OVER one million people face a shortfall of £2,858 in retirement, experts have warned.

Anyone who has just the state pension to live off would run out of cash today, according to the Pensions and Lifetime Savings Association (PLSA),

A single pensioner needs an annual income of £14,400 to meet the what the PLSA calls a “minimum” standard of living.

It aims to cover all of a retiree’s basic needs as well as to have a small amount left over for leisure.

But the new state pension is currently worth just £11,542 annually.

That means that those without extra savings would exhaust their income by October 18, which the PLSA has branded “State Pension Shortfall Day” .

Around 1.2million retirees will need to contribute an extra £2,858 from a private pension or other savings to bridge the gap.

Pensioners aiming for “moderate” or “comfortable” retirement need more savings to cover annual expenditures of £19,758 and £31,558 a year respectively. 

A moderate retirement is considered slightly more extravagant, while a comfortable one includes extra cash for multiple holidays abroad.

It means those relying solely on the full new state pension would run out of money even earlier in the year if their spending aligned with these higher standards.

The PLSA updates its retirement living standards each year to consider the rising cost of living.

They’re designed to help savers determine how much cash they’ll need when they stop working.

They don’t count mortgage payments or rent or any financial support you give your children or other dependents.

If you think you’ll still have those costs to meet when you retire, you’ll need to up your savings considerably.

Stephen Lowe, group communications director at retirement specialist Just Group, said: “At a time when government support for retirees’ finances is under scrutiny, State Pension Shortfall Day marks the day in the year when a pensioner living to a ‘minimum’ standard would theoretically run out of money if their only source of retirement income were the state pension.

“Despite two successive, significant increases, the full new state pension still falls nearly £3,000 a year short of meeting the ‘minimum’ of the PLSA’s Retirement Living Standards and is nearly £20,000 lower than the income required to support a ‘moderate’ standard of living.”

THE ‘MINIMUM’ RETIREMENT

The PLSA’s minimum retirement living standard covers all of a retiree’s basic needs as well as having some money left over for fun.

It includes a week’s staycation each year, eating out once a month, and some affordable leisure activities twice a week – but no car.

The PLSA says to afford this retirement, you would need an annual budget of £14,400 as a single person and £22,400 as a couple. 

It’s important to remember that the state pension will make up part of that income. 

Retirees can start to claim the state pension at 66, though if you’re retiring after 2026, you’ll almost definitely see that minimum age rise.

Those claiming the full flat rate state pension now receive £221.20 a week, equal to £11,542 a year.

However, not everyone qualifies for the full amount.

If you had gaps during your working year, you may have paid less national insurance and would receive a smaller state pension to reflect that.

However, millions of retirees can still top up their national insurance contributions.

THE ‘MODERATE’ RETIREMENT

For a slightly more extravagant retirement, an individual will need an income of £31,300 a year or £43,100 for a couple.

The moderate retirement living standard includes a two-week holiday in Europe each year and eating out a few times a month. 

Around half of single employees are estimated to be on track to achieve a minimum or moderate retirement, with couples more likely to be at the top end of this range.

THE ‘COMFORTABLE’ RETIREMENT

To live comfortably in retirement, the PLSA said an individual would need an income of £43,100 a year, and a couple would need £59,000 between them. 

This includes a three-week holiday, plenty of money to spend on clothing and more on social activities such as birthdays. 

It would also be enough to cover several UK minibreaks a year.