It doesn't cost much to retire well

The pensions industry would have you save so much money that you have a higher income in retirement than your final salary. But that's not necessary!

Scottish Widows is the latest pension provider to tell us how terribly short we are from achieving our retirement goals.

Apparently, we think we need £24,300 per year (in today's prices) in retirement to live comfortably. Scottish Widows does nothing to discourage this belief but, if that is the case, most of us are going to have a very disappointing retirement indeed.

I can tell you now, the vast majority of us won't have anything like that when we retire. Most people in their 50s are now earning £22,000 or less, according to Office of National Statistics data. Yet on average we get around 30% of our final incomes when we retire, reports the Organisation for Economic Co-operation and Development. That's a long way off the 110% we think we need.

Hence, £24,000 is an incredible expectation.

The good news is we're wrong

The good news is that our estimates of what we need to live comfortably in retirement are likely to prove far too pessimistic. Several readers have written to me about how they live happily and comfortably on between £8,000 and £11,000 per year.

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Costs in retirement are considerably lower

The main reason for this is that we can reduce our costs dramatically when we stop working. By the time you retire you have, I hope, paid off your mortgage and debts. That should certainly be your goal. You have also stopped commuting, and finished buying sandwiches and coffee on the way to work every day.

Most of us will at this stage no longer have to support our children in any meaningful way. We will eat more home cooking, and eat less overall. We'll go out drinking and entertaining less. The largest part of our wanderlust might already have been sated in our youth but, if not, we can rent out our homes and go travelling on the proceeds.

Yes, we might buy more tea bags and newspapers, and more time at home with our weakened bladders may mean we flush the toilet more. Also, if we think we'll be particularly healthy and active that may cost extra, yet on the whole we can expect our costs to be far lower than they were in our 30s and 40s. What's more, as the retirement years go by, we'll spend less time on the pistes and more with our feet up and a good book. That helps counter the effects of rising prices on our retirement income.

One big thing to consider is the cost of long-term care. A large minority of us go into care, and it's not cheap. How you choose to go about preparing for the possibility that you will become unable to look after yourself is a personal decision, but one worth researching and thinking about.

Unrealistic expectations

Not only do we think we need £24,000 to retire comfortably, but on average we want to retire at 62, says Scottish Widows. Very few people will manage both of those goals – and most of us won't achieve even one of them.

Anyone retiring at 68 can expect to live another 15 years. 60 years ago, we were lucky to live half as long after our retirement, even though we retired earlier. This means our retirement pot has to stretch out for a much greater time period.

We should therefore set our expectations for working longer. That way, if we manage to retire earlier, we'll be pleasantly surprised. If we don't, at least we can console ourselves that we expected this, and that we might still enjoy many more years with our feet up than our grandparents did.

Read more on this in Watch out if you want to retire at 65.

How much do we need?

And now to the important question: if most of us don't need £24,000 to live comfortably, how much do we need?

Pensioners receive more benefits and pay less taxes, which helps stretch their money further. We might even get the first £7,000 or so of annual income from the state pension (in today's prices), although governments will likely fiddle with that by the time many of us retire.

This is a great start, but we can't rely on the state and will need to save more. Since we are all individual with very different needs and wants, we must do our best to estimate the retirement pot we need ourselves, and then estimate how much we should save to get that pot. I have helped you do this in my guide, which you can find in Good news about your pension.

Finally, don't leave thinking about this until it's too late. £50 invested now for retirement might become £200 in real terms in 30 years. (Plus inflation on top, making the saved amount nominally hundreds of pounds more – although that won't mean you'll be able to buy more.) If you wait 20 years to save that £50, it may just become, say, £80 ten years later.

Starting early makes a massive difference, even when you're talking small amounts.

More: Compare savings accounts and ISAs | The danger of using property as a pension | Four ways to save for retirement