Page 2: How much does retirement cost?
In order to appreciate the importance of pensions, it is helpful to consider what retired people need to buy with their pensions. A 65 year old man retiring today and requiring a yearly income of £10,000 for the rest of his life would need to have put aside around £130,000 as an annuity. You are most likely to have come across the term annuity when playing ‘Monopoly’ - a Community Chest card might read:
‘Annuity matures - Collect £100’
In the real world, we can earn annuities by paying regular sums over a number of years into a pool, or fund, run by an organisation like Eagle Star. When the annuity matures, a fixed yearly sum – an annuity - is received from Eagle Star. Of course, by the time today’s school leavers retire, today’s prices will no longer apply (25 years ago a new Ford Escort cost just £896!) It is hard to assess the cost of living in, say, 30 years time - but it is possible to work out what would be needed in today’s terms and then estimate what might be needed on retirement. There are some things, however, which may be more expensive for pensioners than young people e.g. fuel bills and perhaps money spent on leisure, recreation and holidays.