Actuarial number crunchers have calculated the exact amount of money you need for a happy retirement — and it is £1,700 a month.
In order to deliver this income DC savers need a full state pension, plus a pension pot of just under £222,000, according to Legal & General.
The insurer conducted this research with the Happiness Research Institution, a Danish think tank focusing on wellbeing, happiness and quality of life. It found that the happiest retirees have an average monthly income of £1,700. Those with higher income were not any less happy, but additional funds did not bring any increased sense of wellbeing.
This study was based on the lives of 3,000 retirees, and explored a number of wellbeing measures, including social connections, health and income to analyse the role money plays in a happy retirement.
However if found only a third of UK retirees (38 per cent) have this level of income, that will help them build a ‘happy’ retirement.
L&G’s research found that one in five retirees (22 per cent) live on less than £1,000 a month, falling below the Pensions & Lifetime Savings Association’s (PLSA) minimum standard for covering essential costs in later-life.
L&G says a key factor of happiness in retirement is financial status — an income below this level correlates with retirees who score lower on these wellbeing measures. However it says that once income surpasses £2,000 a month, other factors are more likely to come into play.
The study found social connections and good health were also vital for people remaining happy as they age, regardless of income. The happiest retirees were also more likely to be satisfied with their day-to-day routines (80 per cent versus 28 per cent), free time (66 per cent versus 25 per cent), relationships with family and friends (70 per cent versus 36 per cent), and social lives (74 per cent versus 23 per cent). They were also much less likely to report severe loneliness (4 per cent versus 18 per cent).
The Happiness Research Institute builds on measurement guidelines and benchmarks from the Organisation for Economic Co-operation and Development (OECD) and United Nations (UN) to measure people’s happiness.
Legal & General says that those starting their pensions today, and retiring sometimes in the late 2060s would need an annual income of £77,145 to reach the satisfaction levels of today’s happiest retirees. To achieve this, it calculates the average person along with their employer would need to set aside nearly 10 per cent (up from the current 8 per cent) of their qualifying income every month, from the age of 22 until retirement.
But this assumes the saver has not had a career break and owns their own home. For the average person, the reality is that the contribution rate will need to be higher as many people will need to compensate against career breaks or periods of reduced income, for example part-time work for caring responsibilities). Renters who do not have property wealth to fall back on could need to contribute up to 21 per cent
Legal & General managing director, retail retirement Lorna Shah says: “Our collaboration with the Happiness Research Institute aims to give us a greater understanding of what people truly need to be happy in retirement, so that they can maintain and even improve their wellbeing as they get older.
While strong social connections and good health play a vital role, the study shows having a predictable income is key to unlocking the other elements of life that make us happy.
“Young adults today need more support to help them save and secure a more rewarding retirement in future; a key step in achieving that is an increase in workplace pension contributions. We should also consider the role that other assets, such as property, might play in helping people supplement their pension pots.”
Happiness Research Institute CEO Meik Wiking adds: “The study shows that money does indeed matter for happiness. In fact, money plays a crucial role.
“Being without sufficient resources to make ends meet causes worry and stress and a lower quality of life for people in the UK. That is especially the case for people in retirement. The good news is that there are ways we can improve happiness levels by planning and saving for retirement.”