Average cost of retirement in the UK is £413,000

Retirement in the UK costs a typical household £413,000, and costs an individual living alone £326,700, according to the 2008 "Cost of Retirement" report issued by Life Trust Insurance. The report, written by cebr (centre for economics and business research) for Life Trust, provides an objective and accurate forecast of the amount of money a person would need to fund a retirement in the UK if they were to retire at 65. It warns that people need to factor in increasing longevity when planning their retirement finances, with the cost of retirement for someone who lives to 100 soaring to £708,500.

The report also highlights that while current predictions of life expectancy are 85 for a man and 88 for a woman, these are set to rise significantly. The averages alone are deceiving as they do not highlight the real chances of a person reaching an advanced age. For example, someone who is 55 today has a one in four chance of reaching 95 and a one in 10 chance of making 100. Similarly, someone who is 35 today has an almost one in three chance of reaching 95 and a one in seven chance of reaching 100. For every extra year there will be extra expenditure.

The cost of retirement findings are based on a long-term forecasted inflation rate of 2.3 per cent, but the research warns that if inflation were to remain at around today's current level, the cost of retirement would rise to £1 million for the average person living to 100. Taking a more extreme scenario, the report also highlights that if inflation were to increase and hit the 4.6 per cent level, the cost of retirement would reach £1.3 million were someone to live to receive their telegram from the Queen.

The retirement spending gap between rich and poor for those living to advanced ages is over £1 million. PARTYers (Pensioners in Active Retirement Travelling like Youngsters) in the top 20 per cent of income earners need on average £1.55 million to fund their retirement years, compared to the BUS-PASSers (Buy Utilities on State Pensions, And no Surplus Savings) in the lowest 20 per cent who need £448,500. Retirees with an average income, or GOLFERS (Getting Older, Limited Funds, Eeking-out Retirement Savings), would need £708,500.

Andy Briscoe, CEO of Life Trust, stated: "People are living longer, healthier lives. This is great news but only if people have the finances in place to really enjoy their post-career years. The combination of rising life expectancy and the impact of inflation over time can have huge financial implications, and this report allows us, for the first time, to see the scale of these trends.

"With more and more people reaching 90 and beyond, and with 90 becoming the new 70 in terms of healthy ageing, it has never been more necessary for the industry and individuals to understand the true cost of modern retirement."

Age 92 is the most expensive year of retirement

Living a longer life highlights that a retiree's spending differs greatly across their retirement years. Overall, the latter stages of retirement are the most expensive, with the annual cost of retirement for an individual peaking at 92. At this age, a retiree would spend 50 per cent more across the year than they would have spent at 65.

Early retirement costs an additional £373,300

Many Britons aspire to and dream of early retirement, but finishing work early incurs significant costs. As well as accepting the loss of career income, early retirees finishing work at the age of 50 will need an additional £373,000, or around £25,000 per year, to fund their retirement. The spending for an early retiree peaks at 60 as people take advantage of their first years away from work, spending £5,000 a year on recreational activities, such as cinema tickets, theatre and home entertainment equipment.

To find out your chances of reaching an advanced age visit longevitycalculator.co.uk

For more information about Life Trust and the company's inaugural product, the Longevity Income Plan, which pays out more the longer you live, visit lifetrust.com.