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