Do you dream of retiring in the sun? You need an additional £4,200 per year

If you’re imagining a retirement where you want to sit back and enjoy the spoils of all of your life’s hard work, you might just want to take another look at your totals.

With each month that goes by, financial goals shift, making what once would have made a comfortable retirement possible no longer possible.

Thanks to rising inflation, the income you’ll need in retirement to sustain your current lifestyle has increased dramatically.

According to one analysis, pensioners now need to find an additional £4,200 each year to maintain a comfortable standard of living later in life

Analysis for Wealth & Personal Finance finds that pensioners now need to save an extra £4,200 a year to maintain a comfortable standard of living later in life.

Stockbroker Interactive Investor has calculated that the extra amount needed in a pension pot over 20 years due to rising costs is £68,700.

Prices and daily spending have risen 9.1 percent since April last year, significantly weakening purchasing power.

According to estimates by the pension industry, it cost a single pensioner £43,500 to lead a ‘comfortable’ life before tax last year. But adjusting for last year’s inflation, that figure has risen to £47,700 a year today.

That would buy you a three-week holiday in Europe every year, a new kitchen and bathroom and car every 10 to 15 years – and £157 on groceries every week.

Those on the full state pension, which pays £10,600 this tax year, will need an income of £37,100 from their private pension to achieve this lifestyle.

However, according to the Pensions and Lifetime Savings Association (PLSA), which sets spending guidelines, more than nine in 10 workers are not saving enough for their retirement to ensure a comfortable retirement.

The Association’s “Retired Living Standard” is widely used by the pension industry as a measure of how much money retired people need to sustain their spending habits.

Almost three quarters of retirees will have a minimum living standard, they will be able to afford to eat out only once a month and they will not have enough income to keep a car.

Those aiming for a comfortable lifestyle need a pension pot worth £598,700 on top of their annual state pension

To meet this ‘minimum standard of living’ requires £14,300 a year before tax – up from £12,900 last year. When considering the state pension, this means that those in this category would need to have an annual income of £3,700 from their personal or company pension savings.

Pensioners need £59,900 in retirement savings to afford this lowest standard of living if they bought it as a pension. These contracts exchange a cash amount for a guaranteed yearly income until death.

Last April they would have needed just £36,500 – a difference of £23,400.

However, those aiming for a comfortable lifestyle need a pension pot worth £598,700 on top of their annual state pension. That’s £68,700 more than they would have needed in 2022.

Interactive Investor’s Alice Guy, who did the calculations for The Mail on Sunday, warns that high inflation will have a devastating impact on pensioners’ spending power.

She says, “You need so much more retirement income just to maintain the same purchasing power.” Such staggering amounts are simply unaffordable for retirees, as many of them have a small private retirement fund that is dependent on stock market performance and potentially in the has not kept pace with inflation over the past 18 months.”

Worse still, she warns of the danger of taking even more from the pension pot. “It could have a long-term impact on your pension wealth – drawing too much could result in some retirees running out of money sooner than planned.”

A guaranteed inflation-proof source of income is the state pension.

With the triple lock, the payment increases each year by the peak of inflation, earnings growth, or 2.5 percent. Retirees are on course to receive above-inflation growth next year as earnings growth came in higher than expected.

Almost three quarters of retirees will have a minimum living standard, they will be able to afford to eat out only once a month and they will not have enough income to keep a car

Official earnings data released by the ONS last week showed annual earnings growth of 8.2 percent from April to June.

Meanwhile, inflation fell to 6.8 percent in July and economists expect inflation to slow again in the coming months. If income growth stays at this level for another month, pensioners’ incomes would increase by £869 a year.

But that covers less than a quarter of the extra £3,700 they need for a comfortable retirement.

So what can you do to protect your pension from spending cuts? Investing your job or personal retirement savings in the stock market gives you a chance to offset inflation, says Rebecca O’Connor of pension provider PensionBee.

Retirees should also ensure they make the most of their tax breaks and, if eligible, apply for a pension credit.

For those approaching retirement, it’s important to ensure they aren’t missing out on thousands of pounds in fees. The average person has 12 different jobs over the course of their career, which means they could have a dozen different pensions. You can transfer some of these cash holdings to consolidate your savings.

This can be a great way to save on the fees charged by pension plans, especially when you find that some charge a lot more than others. A small difference in fees can cost tens of thousands of pounds over decades. It is just as important to take a close look at the charging structures when you retire.

According to the consumer group, for a £260,000 pot over a 20-year retirement, the difference in growth between the cheapest and most expensive “claim” plans – where you take money out of your pension pot when you need it – was almost £18,000. Which?.

You may also consider retiring or working part-time in later years. This means you will have a higher annual pension income when you leave the job for good.

On average, if you stop paying into your pension at age 55, your last nest egg will be 59 percent smaller than it would be if you had continued saving until the state pension age, which is currently 66, according to Canada Life.

If you’re unsure of how much you’ll need in retirement and how to manage your money, take advantage of the government’s free Pension Wise service. Book a free appointment for a pension consultation with MoneyHelper.