Retirement costs have gone up by 60%. Here’s how to retire comfortably

14/11/2024

It’s likely that when you picture your upcoming retirement, you don’t envisage making sacrifices to your lifestyle. Instead, you probably imagine living an even fuller, richer, more exciting life than you do now.

Of course, to achieve this much-deserved luxury retirement, you will need to accumulate enough wealth first. While you already know this, you might not know that according to a study published by PensionsAge, the overall cost of retirement has risen by as much as 60% in just three years.

Keep reading to discover which costs have risen significantly for retirees, plus tips on how to save and invest for a comfortable retirement despite rising expenses.

The high cost of housing, travel, energy, and later-life care may affect retirees’ financial stability

Global events, including the Covid-19 pandemic and geopolitical conflict, are contributing to a rise in the overall cost of living here in the UK.

Despite inflation falling to 1.7% in September 2024, the Office for National Statistics (ONS) reports, it’s important to remember that we’re still feeling the effects of the double-digit inflation from 2022. While costs are now rising more slowly, they are still rising overall, on top of the exponential increases we experienced during the pandemic.

For retirees, rising prices could pose a problem. Rather than accumulating capital, you’ll be decumulating – slowly withdrawing the funds you’ve saved up throughout your career. If costs keep rising, your finite resources could be in danger of running out. That’s why, as Legal & General reports, 28% of retirees face decisions that could see them outlive their pension pot – something none of us wants to think about.

Some of the costs that could affect retirees most severely include:

• Housing. The Zoopla House Price Index – one of many indices reporting similar data – says that the average cost of a UK home has risen to £267,500 as of September 2024. What’s more, the Equity Release Council reports that 1 in 5 people now expects to retire with a mortgage, and 18% of over-55s say that paying the mortgage is preventing them from saving enough to retire.
• Travel. It’s likely you have big travel plans for your retirement – perhaps you want to finally spend a month in Australia or go on safari once you finally stop working. But the NerdWallet Travel Price Index reports that as of September 2024, while flights are still around 5% cheaper than before the pandemic, hotels are 9% more expensive and food away from home is 30% dearer.
• Energy. It’s not just big ticket expenses that could affect retirees. Everyday essentials, including energy bills, could erode your retirement savings over time. After already experiencing an exponential rise in energy costs since the pandemic, the BBC reports that UK consumers could see an increase of up to 10% in 2025, with the average gas and electricity user set to pay £1,717 a year. What’s more, the government’s halting of winter fuel payments for 10 million retirees could add further pressure.
• Later-life care. Later-life care has long been expensive – this is nothing new. Age UK reports that as of July 2024, it costs around £800 a week to live in residential care, or £1,078 a week to live in a nursing home. Most people need to fund part of all of their own care. But now, with life expectancies rising, Fidelity estimates that 3 in 4 people will need later-life care at some point, so the chances of you needing to save for this eventuality are relatively high.

With all this to consider, you could feel pessimistic about your retirement prospects. If so, remember that you can take steps now to reduce your financial stress in the years to come.

3 top tips to help you save for a comfortable retirement in light of rising costs

1. Make sure you’re eligible for the full new State Pension before 6 April 2025

As of 6 April 2025, the full new State Pension is rising to £230.30 a week, nearly £12,000 a year, up from £221.20 a week in 2024/25.

This uplift is a result of the annual triple lock, which increases the State Pension in line with the higher of wage growth, inflation, or 2.5%.

To qualify for the full, new State Pension, you’ll need to have worked for 35 “qualifying years”. These are years in which you paid National Insurance contributions (NICs) or received an equivalent credit. You can check your State Pension forecast on the government website.

Crucially, if you have gaps in your NI record, you can pay voluntary NICs for missed years between 2006 and 2024 until the deadline of 5 April 2025. After this, you’ll only be able to fill in NICs for the previous six years.

So, as you prepare for retirement, do not underestimate the value of the State Pension. According to The Times Money Mentor, if you received the full new State Pension on the 2024/25 rate of £221.20 a week for 20 years, these payments would contribute £230,000 towards your retirement – and this is without factoring in any increases from the triple lock.

2. Start proactively saving for retirement

If you’ve been employed rather than self-employed most of your life, it’s likely that you have been passively paying into your workplace pension(s) for many years.

While you might assume this is enough to form a healthy retirement fund, in light of rising costs, it may be worth becoming more proactive.

You could start by:

• Increasing your monthly pension contributions
• Asking your employer to match what you put in
• Claiming your marginal rate of tax relief through self-assessment
• Using your annual Individual Savings Account (ISA) allowance to save and invest free of Income Tax, Dividend Tax, and Capital Gains Tax (CGT).

Putting these measures in place today could add significant value to your retirement fund.

3. Form a retirement strategy with your financial planner

Approaching retirement with a “DIY” approach could leave you with a shortfall later in life.

Whereas, taking the time to have your circumstances professionally assessed, and benefiting from advice before, during, and after you have retired, could bring you the peace of mind you need.

Get in touch

To conduct a thorough review of your retirement prospects and enter this next chapter with confidence, get in touch with us.

Email info@depledgeswm.com or call 0161 8080200.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). Your capital is at risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

The Financial Conduct Authority does not regulate tax planning. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace pensions are regulated by The Pension Regulator.