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Could you live on the national minimum wage in retirement?

Failing to save for retirement could mean you end up scraping by on the state pension – the equivalent to living on the miniumum wage.

 

by Michelle McGagh on Jul 02, 2012 at 12:29

Could you live on the national minimum wage in retirement?

If saving into a pension is at the bottom of your to-do list, ask yourself whether you are capable of living the retirement you want to on the national minimum wage.

Currently the national minimum wage is £6.08 an hour for those aged over 21, and someone working full time (35 hours a week) on this wage takes home around £11,000 a year before tax.

Those who are relying on the state pension to fund their retirement cannot expect to have much more in their pocket, according to Ray Chinn, head of pensions at insurer LV=.

Based on the £140 a week flat-rate state pension that is being introduced next April, plus universal benefits and credits given to the elderly, Chinn estimates that the state pension is equivalent to around £11,000, the same as living on the national minimum wage.

‘People need to ask themselves whether they can afford to live on minimum wage, and how much more they need to save on top of it,’ said Chinn.

How much will I need?

Working out how much income you will need each year to live on in 40 years' time can be a daunting task, but Chinn recommends aiming for two-thirds of your current salary, assuming that by the time you retire you will have paid off the mortgage and have no dependents.

In the UK, the average wage is just over £25,000, which Chinn says would realistically equate to needing £18,000 income each year in retirement.

‘In retirement you can probably live on two-thirds of your current income because you have paid off your mortgage and things get a bit easier when you retire, as long as you don’t have any dependants,’ he said.

‘The average wage in the UK is £25,000, so you would need £18,000. You need to ask where you will find that extra £7,000 a year on top of the state pensions.

‘As a pot of money, you would need around £100,000 to fund £7,000 a year in retirement.’

For those who haven’t made retirement saving a priority, Chinn said they have three options: ‘Work longer, save more, or live on less.

‘There is no silver bullet. We are seeing people work longer through retirement and so they are funding that extra £7,000 through a part-time job,’ he said.

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12 comments so far. Why not have your say?

David Harvey

Jul 02, 2012 at 17:02

If a person has lived on minimum wage or just above for most or all of their lives they would be unlikely to be able to save anyway. With austerity measures as they are and wages dropping due to a number of influences, not least that of those who feel low pay means better company growth even though it means broke customers, it would seem we are setting an increasing number of people up for a fall. Many have had their working lives cut short having been put out of work at a time in their lives, where, despite Mr. Cameron's belief that older people are needed, are the first to go. At the same time there are more hours to find for those who are young and bringing up families and buying homes. There are large numbers of people who are now unemployed, part time, on minimum wage, slightly over minimum wage etc for whom the decision has been made. They pay little tax and can afford no pension other than state.

It seems at times that with corporations being deliberately allowed to take advantage of tax loopholes which costs the country an amount equal to the Greek national debt each year and them the impoverishment of working people I do wonder where funding will come for anything.

Looking at the news in recent years has lead me to believe that Capitalists are Capitalism's worst enemy!

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Alan Morrice

Jul 02, 2012 at 17:38

Anyone saving for years to build up a small pension with the likes of LV= is likely to disqualify themselves from means-tested benefits they would otherwise be receiving. A mug's game.

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David Harvey

Jul 02, 2012 at 18:42

You are right Alan. I see the results first hand. I know people who have the job of giving or refusing needed equipment to citizens and many of those say they will spend every penny before they become needy.

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Tortoise

Jul 02, 2012 at 19:45

The new state pension is to be £140 per week. Isn't that about £7,000 per year? Nowhere near the minimum wage of £11,000. Has not Mr Chin got his sums wrong?

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David Harvey

Jul 02, 2012 at 20:08

That's probably due to the universal benefits he mentions, Bus passes, free prescriptions, heating allowance. It seems the 11000 figure is sort of made up really.

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James B. Johnson

Jul 02, 2012 at 22:05

Another small correction to Michelle's article:

The only people to receive the flat rate State Pension of £140 per week will be those who retire next April, NOT existing pensioners.

I'm not even certain that it will come into force next year. Is it not 2015?

Who will be in Government then?

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James B. Johnson

Jul 02, 2012 at 22:13

Sorry. I should have added this:

When Cameron was elected two years ago he said, "Cuts will have to be made but the vulnerable will be protected".

So far he has attacked ONLY the vulnerable, pensioners, low income families, children and young adults, the unemployed, and public sector workers.

He has given tax breaks to working standard rate tax payers and a huge tax break to the richest.

Can anyone deny the truth of this?

Examples please.

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Alan Morrice

Jul 02, 2012 at 23:33

James,

I'm a pensioner. The state looks after me very well. I don't feel 'vulnerable'.

Why any 'rich' person, ie having a middle-class professional income would stay in Britain and pay even 45% tax beats me.

Why do you think places like Oz, the US, Canada, the Gulf States, Singapore, etc are awash with British professionals? How many British offshore workers are living in Thailand alone, unwilling to return to the UK to hand over their hard-earned?

The old politics of envy is again rearing its ugly and destructive head.

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Hilary hames

Jul 03, 2012 at 00:11

What is the reasoning for new pensioners getting more state pension than existing ones? Is it becuase they will have worked longer?

I am lucky enough at 65 to have been able to put off claiming my pension over the last five years as I am still working part time and my husband has an occupational pension. However I have had to think about my income should my husband die before me (my mum made 97) and thats why I have put off taking my state pension even if, in the end, I die early and it was a financial mistake! I would get half my husbands pension but without a complete lifestyle change I feel that it costs proportionately more for one person to live than two.

I love my bus pass and my winter fuel allowance, of course I do. Who knows what we will get after the next election - I am a great believer in the bus pass becuase it enables people to get around more and may encourage older pensioners to drive less or not at all. BUT I think it would be totally fair that people still in work continued to pay National Insurance. It came as a complete suprise to me when my pay shot up on my 60th birthday!

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Michael Stevens

Jul 03, 2012 at 09:49

Minimun Wage should be 37.5 hours to give £11,856 per year.

The goverment has done alot for the lower paid by raising the Tax Allowance.

The tax allowance should be raised to £12,000 and all other tax alowances and tax credits scraped. KEEP IOT SIMPLE.

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James B. Johnson

Jul 03, 2012 at 15:50

Re: Alan Morrice

Of course you are vulnerable. You can't work harder, get promotion, get a better job, go on strike, work abroad. You are totally at the mercy of the governing party and if they choose to reduce your pension, which they have just done, there is not a damn thing that you can do about it, EXCEPT VOTE THEM OUT.

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David Harvey

Jul 03, 2012 at 19:12

Re Alan Morrice

It is a delight to hear you say that Alan and I am glad life is good for you. I wish it was the same story for all. You are an intelligent made and able to advocate for your self, for most this is not the case and their achilles heel. All to often people are left to be carers for their family or spouse when they need carers themselves or are too young. The amount of pain people suffer in their old age in the name of austerity. They are all vulnerable but most would not admit it when at times that in itself is, their vulnerability. I often have wished some of the people who make remarks on here could be a fly on my shoulder. I saw a string a while ago on here pointing out how ignorant the British people are about shares etc and couldn't help thinking how the first hand knowledge that I have would benefit those accusers more than the knowledge of shares.

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