Retirees spend £26,000 a year. Will you have enough?

Retirement date circled on a calendar

A recent study from consumer body Which? found that retirees spend £26,000 on average per year (or roughly £2,200 per month). This figure covers all basic expenditure plus a few luxuries, such as holidays in Europe, hobbies and eating out. If you want your retirement to be extra comfortable, you're going to need even more cash coming in. For those desiring long haul holidays and a new car every five years, the average yearly spend rises to £39,000.

In addition to the above and perhaps unsurprisingly, Which? also found that the destination of pensioners' money changed as they entered retirement. While those entering their golden years may have more time on their hands, they'll also likely be paying more in terms of utility bills, health and insurance premiums.

Of course, how much you need will depend on what you see your priorities as being. That said, it's likely that the state pension (currently £122.30 per week) won't get you anywhere near the levels needed to secure the lifestyle you want. For this reason, the stock market remains a solid choice for anyone contemplating how to secure a decent retirement.

Hit the market

Study after study has shown that -- over the long term -- equities outperform every other asset class by a significant margin. So long as they can stand occasional discomfort, this means that those decades away from quitting the rat race for the golf course can benefit from the power of compounding returns over many years. This can be achieved by devoting as little as £25 per month -- roughly the cost of two cinema tickets -- to a stocks and shares ISA.

Those closer to retirement can boost their levels of income by keeping at least a proportion of their money in high-yielding shares for longer. At the time of writing, 25 members of the FTSE 100 offer dividend yields of over 4%, almost four times as much as the best paying instant access cash ISA.

To be clear, there are no guarantees that any company will always be able to honour its payouts. In times of distress, dividends are one of the first things to be sacrificed. That said -- and bar severe economic wobbles -- investors can minimise the likelihood of this happening by purchasing a diversified group of quality companies that have shown an ability to consistently grow profits and therefore cover their dividends.

Playing it safe

Not everyone gets excited by investing, particularly given the stock market's reputation for overcomplicating anything when given the opportunity. The threat of volatility also keeps many away.

Fear not. Those unwilling to research individual companies and discover hidden gems -- particularly those operating lower down the market spectrum -- could still do well through investing in managed funds or index trackers. The former can be a particularly good option if you're interested in following a specific strategy, such as high growth or -- for the retired -- high income.

While still less popular than managed funds, passive investment vehicles such as trackers or exchange traded funds are quickly becoming a significant part of the private investor's arsenal. Thanks to their low management fees, the returns generated by these investments tend to be better than bog-standard funds steered by high-earning institutional investors, even if the latter manage to outperform the market (most don't).

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

How we spend our pensions
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How we spend our pensions

Figures from Saga show that the over 50s now account for the majority of money spent by Brits on travel and tourism. They have the time to spare, the money, and they are healthy enough to take on the world.

A poll from Abta found that in the wake of pension freedoms, 35% of people were considering cashing in at least part of their pension to travel. A separate study by Senior Railcard found that pensioners take an average of three holidays a year, plus two weekends away, and 17 day trips.

Research from Senior Railcard found that retirees eat out an average of three times a month. However, one in ten do so more than twice a week, and one in three people said that one of the first things they did when they retired was to go out for lunch with their friends.

Of course, just because retirees want to enjoy themselves, it doesn't mean they are happy to throw money away. The vast majority are keen to eat at lunchtimes, when a fixed lunch menu tends to be cheaper, and canny retirees are skilled at tracking down pensioner special offers too.

Figures from the Office for National Statistics show that on average nearly a fifth of the money spent by people aged 65-74 is on leisure. This includes everything from the cinema and theatre to golfing and gardening. They spent more on this than on food, energy bills and transport.

A report by Canada Life found that retirees are spending £4,279 a year on having fun - that’s more than £1,000 more than they spend on boring essentials, and is a 74% increase over the past ten years. It went on to predict that this trend was set to continue, and that pension freedoms would encourage people to spoil themselves a bit more in retirement

Pensioner property wealth is now over £850 billion, and all these family homes don’t look after themselves. The Senior Railcard survey put home renovations in the top 20 activities people got stuck into on retirement, and figures from ABTA found that almost a third of people who were considering raiding their pension pots under the new pension freedoms planned to spend the cash on their home. This seems like an eminently sensible investment - looking after what is undoubtedly their most valuable asset.

Unsurprisingly, while some pensioners are very well off indeed, others are struggling with debt. Figures from Key Retirement found that the average retiree has £34,000 of debt.

Most of this is mortgage borrowing - in many cases driven up by the number of people who unwittingly signed up to an interest-only mortgage. However, credit cards, overdrafts, and loans are also common. It’s why so many pensioners have used pension freedoms to access enough cash to pay their debts.

The day to day basics are swallowing up their fair share of pensioner cash too. On average, people aged 65-74 spend a third of their weekly income on essentials like food and bills - which is hardly living the high life.
The bank of gran and grandad has become an increasingly vital source of cash for families. According to Key Retirement, of those who release equity from their property, 21% of them use the cash to treat their children and grandchildren. This includes an average of £33,350 to help children get onto the property ladder, £6,000 to buy them a new car, £11,000 on family weddings, and £24,780 giving grandchildren a helping hand.

While retirees are quite rightly spending what they need to enjoy retirement, they are hardly all throwing caution to the wind, buying flash cars and spending the kids' inheritance.

Most expect to have something left over to pass onto their family after their death. Some 69% expect to leave property in their wills, and 75% expect to leave cash - according to - because while baby boomers know how to have fun - they also know how to save for the future.


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