New analysis of Government figures by Standard Life, highlights the average retired couple has a pension income worth £ 284 per week. This is made up of both occupational and private pension income, but excluding state pension income.
Those who have a similar weekly income target in mind for their retirement have various options.
One is a ‘level’ annuity – a type of annuity which pays a person the same amount of regular income from the start of retirement, usually until a person dies.
However, Standard Life has warned this might not maintain purchasing power for future years.
Couples who are eyeing up a £ 284 income per week, will need to have amassed some £ 267,000 in retirement savings according to the group.
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Meanwhile, the top fifth of pensioner couples have pension incomes of £ 704 per week.
To hit this target it is argued people will require a pension pot of £ 660,000 if they want to secure the same type of annuity to guarantee income for life.
If a person or couple want to buy an index-linked annuity, where their income increases in line with inflation, they will need a substantially larger pot.
However, these individuals will be able to rest in the knowledge their income is more likely to keep up with the rising cost of living.
So, how can Britons progress towards this goal and make their savings work harder, especially given high inflation?
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Firstly, Standard Life encourages individuals to revisit their financial goals as these may take longer to reach than originally planned.
Next, the group suggests a “direct debit detox” where people can cancel unused memberships and subscriptions to help them save money.
Prioritizing one’s spending will be important during difficult financial times, as essential spending takes priority over luxuries and leisure.
There are some exceptions to the rule, with Standard Life explaining: “if you’ve been thinking about making a big purchase, such as a car or a required home improvement and you have the money to do so, you might find you’d be better off going ahead now rather than waiting until later when prices could be even higher and the pound in your pocket is worth less, saving you money in the long run. “
Another key priority is to clear any outstanding debt, starting with the most expensive debt first.
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When inflation rises, interest rates are generally increased to help control the economy, which means any variable rate debt may increase as a result.
Finally, Standard Life encourages a deeper dive into tax efficient savings and potential investments.
Britons can secure tax benefits on pension payments, a key draw which means it effectively costs less to save more into a pension plan.
Those who stop putting into their pension could miss out on valuable employer contributions, as well as tax relief.
Investments may also be a good way to attempt to secure a return, and Standard Life points towards Stocks and Shares ISAs as a good way to start.
However, people should always be aware the value of investments can go down as well as up, and Britons may get less back than they originally put in.
Consequently, it may not be the most appropriate decision for everyone, and research is encouraged.
Some may wish to consider a cash ISA allowing £ 20,000 a year to be saved tax-free, although inflation could have a negative impact on this.
For more information on this, individuals can speak to their bank or provider, or visit the Government’s free Money Helper service.
Jenny Holt, Managing Director for Customer Savings and Investments at Standard Life said: “Thinking about the amount of money you need to retire can be daunting, but it’s important to have a savings target in mind to fit your desired lifestyle in retirement, that you can work towards.
“It’s also worth keeping in mind that any personal savings are likely to be topped up by the state pension and those with 35 years of qualifying National Insurance contributions can currently expect around £ 9,600 a year under the new state pension.
“In the current environment with inflation having recently reached double figures, there is an increased challenge of making money last.
“So, even while we are in a challenging situation which can lead to a focus purely on short-term finances, if you’re able to continue paying attention to your long-term pension savings, it will be extremely worthwhile by the time you come to retire. “