How much do retirees spend per year on average?

Retirees are spending just over £22,000 a year on average – almost £10,000 less than the recommended cost of a moderate retirement lifestyle.

The average annual spending figure for retirees is £22,140, as calculated by wealth manager Quilter and Centre for Economics and Business Research (Cebr).

This includes gifting almost £2,500 a year to loved ones despite fears about running out of money.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Frugality – by necessity or choice – seems to be a reaction to fears that pension savings won’t last as long as they are needed. Nearly one in five retirees (18%), out of the survey of 5,001, report being very concerned about their ability to maintain their current standard of living. This rises to 29% of retirees aged under 65 with an above-median income.

We look at ways to boost your pension in a separate article.

Nevertheless, UK retirees are still extremely generous, giving almost £2,500 per year to relatives – £1,323 in gifts, with an additional £1,175 to support education. This represents over 10% of their yearly spending and an annual contribution to the UK economy of £16.1 billion.

They give a further £1,048.56 to charities each year. Gifting is also a common way to avoid inheritance tax.

Steven Levin, chief executive of Quilter, said: “Retirees aren’t just budgeting for themselves; they’re quietly propping up the next generation too.

“With nearly £2,500 a year being gifted to family and to help with education of loved ones, it’s clear many are playing a bigger economic role than they’re often given credit for.”

What does the average retiree spend money on?

Retirees’ biggest expense is still housing – including rent or mortgage and property maintenance – which costs them £188.20 a month to total £2,258.34 a year.

Second on the expenses list is groceries at £185.18 a month or £2,222.17 a year, unsurprising with rising food prices (along with air fares) helping to push UK inflation to 3.8% in July, the highest in 18-months.

But, in a reassuring development, it seems the stereotype of retirement being a time to enjoy travel is a true one for the average retiree, who spends £2,137.34 a year on holidays, according to the research.

The industry body Pensions UK recently calculated the kind of holiday retirees can afford with different-sized pension pots.

The other big discretionary spend for those who have retired is renovations and home improvements, on which they spend on average £165.44 a month, totalling £1,985.26 a year.

Perhaps more surprisingly, retirees are also spending a considerable amount repaying debt, to the tune of £131.57 a month or £1,578.88 a year.

The median retiree household income is £35,000 gross (before tax), the research found. That would be £28,719.60 after tax. However, income is not evenly spread across gender and regions.

Two-fifths (42%) of retirees in Wales, for example, report a gross income below £30,000, compared with an average of over £58,000 in London.

This leaves many retirees with very little room to save or cover unexpected expenses, after meeting their regular outgoings

The research also shows the state pension remains a critical source of income. Among those aged 70 to 74, the state pension makes up 47% of household income, jumping to 50% for those aged 80 to 84 – a key consideration for policymakers with the state pension age currently under review.

Quilter’s Levin said: “It is clear from our research that, despite the stereotype of the cash-rich Baby Boomer, too many people are over-reliant on the state pension to make ends meet. Also, too few are taking financial advice, despite the significant benefits seen by recipients.”

Source: Quilter and Cebr