How much money will you need to retire? Share your thoughtsSo, who are the Averages?To give you an idea of how we reached our conclusions, here are some of the basic assumptions we made: Mr and Mrs Average have two children, which remain financially dependant until our couple hit 50. The family have one foreign holiday a year and run a small car.
According to the Council of Mortgage Lenders, the average mortgagee is 36 and owes £112,030. We'll assume that they keep faith in the NHS and have very average taste in clothes and food. By age 40, they will owe around £110,000 on their mortgage and when they're no longer battling the rush hour traffic, will do up to 6,000 miles a year in their saloon.
According to recent data from comparison site confused.com, these are the Average's outgoings: credit card and loan debt (£2,791 per year), utility bills (£1,167 each year), insurance costs (£1,476.84) mobile and landline phones (£627 per year) and council tax (£1,222). Food costs £3,724 a year.
Find the best paying cash ISAAs well as the boring stuff, it assumes the average person pays out for a TV licence (£142.50 a year) and a satellite or cable package at £225 every year. Internet access will set them back an average of £204 a year.
We'll also let them go on one foreign holiday a year. According to the Expenditure and Food Survey, Office for National Statistics this is £650 per year, but this seems rather low. Research for Holiday-Rentals.co.uk earlier this year put the figure at £2,092, including spending money and holiday wardrobe.
For the couple alone, we're looking at very basic outgoings of around £18,000-per-year, including clothing, car costs and leisure money.
However, kids are expensive. Research published in January 2009 by Liverpool Victoria Friendly Society found that the cost of parenting one child is almost £200,000 (£193,772) until the age of 21.
This figure includes the cost of education, food, clothing, babysitters, uniform, pocket money, presents and all the other trappings of family life.
So for two kids, we're looking at nearly £20,000 a year. We'll assume that Miss and Master Average are dependent, 11-year-old twins, living at home, for the next seven years. This will need a sum of £140,000.
However, the years between 19 and 21 are the most expensive (estimated at nearly £40,000 a year). So for three years, the two will cost £240,000.
Danny Cox of Hargreaves Lansdown explains that any retiree should aim to be mortgage-free, so you already need a lump sum of £110,000 in the kitty just to clear that.
As well as making sure you can sustain this for - what could be - a very long life, you must always have what Cox calls: "a cash cushion, a contingency and emergency fund.
"Normally this would be three to six months' expenditure. For retirees, I think cash balances should be much higher - the chances are that in the early years they are going to spend more (holidays etc).
"I would work on the basis of £50,000 plus any planned capital expenditure and this assumes that they live within their income."
To maintain an income of £18,000 a year, they will need a pot of cash to invest. Cox gives a conservative figure (assuming a yield of 2.5%, or 3% after tax): "For every £100,000 invested this generates £2,500 of income."
Mortgage pay-off: £110,000Contingency: £50,000Investment: £700,000Cost of kids: £380,000
To keep them in a very modest, basic but paid-for lifestyle, they'd need a whopping £1,240,000.
Mr and Mrs Average aged 50When the couple reach 50, something very helpful happens: they become debt-free. This has a significant effect on the amount they need to maintain their lifestyle.
According to finance experts, Your Money Matters, the average age that Brits shake off the shackles of debt (not, sadly, including mortgage debt) is 50 years and 90 days.
This knocks down the amount needed each year by almost £3,000. Also, their mortgage will be closer to £30,000, having been paying it off at 4% for the last decade.
The average annual outgoings will be around £15,000 a year.
Mortgage pay-off: £30,000Contingency: £50,000Investment: £600,000
To keep them in a modest, but paid-for lifestyle, they'd need £680,000.
Get your free investment trust brochuresMr and Mrs Average aged 60By the time Mr and Mrs Average reach 60, they have paid off their mortgage and their debts. They will probably still need around £15,000 to live a basic lifestyle, but will not need a lump sum to clear the mortgage.
However as it stands, if they have paid enough in National Insurance Contributions, Mrs Average will now be able to draw a state pension, and Mr Average will be able to in five years (assuming the age of retirement stays the same).
Mrs Average's pension will bring in just under £5,000-per-year. When Mr Average turns 65, this becomes just under £8,000-per-year.
For the next five years, the couple need £10,000 from their investment. After this, they need only £7,000 to supplement the state pension.
Mortgage pay-off: £0Contingency: £50,000Investment: £350,000
To keep them in a very modest, but paid-for lifestyle, they'd need £400,000.
In reality, today's 60-year-olds will most likely be reliant on a state pension or combination of state and private pensions.
Some words of warning, however. We are increasingly taking debt into retirement, while living longer. The average age expectancy of around 80 means very little in relation to 40-year-olds today.
Chris Wicks, financial planner at N-Trust Limited explains, this scenario is very simplified.
"The calculation of the mortgage costs depends on how long is left and what basis it has been set up on. As you can imagine, it is likely that a 60-year-old will have a smaller mortgage than a 40-year-old as they will have paid all or most of it off by then.
"The other problem with the calculation is that you can't just assume a life expectancy of 80 years. A person's life expectancy means that they have a 50:50 chance of making or exceeding it."
The moral of the story is, of course, that Mr and Mrs Average don't exist. If you're genuinely considering retirement options, it's important to seek proper financial advice specific to your individual needs and finances.
****Good Luck****
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