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The price of a decent retirement: £400,000

This may seem quite a modest amount. In fact, the income level guaranteed for pensioners by Pension Credit in 2012 is just over what is needed to meet the minimum income standard, and the proposed universal pension will be more. But don't let that lull you into complacency.

The universal pension just a proposal at the moment, and if you have investments, you are unlikely to qualify for the current Pension Credit, meaning £12,000 becomes a significant ball-park figure on which to base your investment plans.

A man in good health aged 65 can now achieve an annuity rate of between 3.4 per cent (joint life, 3 per cent escalation, no guarantee) and 5.7 per cent (single life, level, no guarantee) on his pension savings. That means to achieve private pension income of £12,000 (without means testing) he would need a pension fund of at least £210,526, rising to £352,941 for the more expensive option.

And the expensive option is really the only way to secure the minimum income standard, as the first will see income swiftly eroded away during a period of high inflation and leave his wife with no income when he dies. Inflation can erode income fast - the minimum income standard for a pension couple has itself increased by 15 per cent since 2008 (a period of just four years).

On top of this inflation-protected minimum income, the most expensive 'extra' that you need to need to factor into your plans is the potential for two years (the average stay) in a residential care home at the end of your life. Depending on where you live and the quality of care you desire, that could cost between £50,000 and £80,000.

So I calculate the minimum you really need to put aside for a retirement that meets minimum standards is £400,000. You could hold the £50,000 reserve pot for a care home (or other 'rainy day' event) in an individual savings account (Isa), where it will grow free of capital gains and income tax.

You can reduce my £400,000 figure by subtracting the basic state pension, currently worth £107.45 a week (£5,587 a year), which would reduce the total cost of retirement by £164,323. However, state pensions are gradually being eroded, with no guarantees they will remain at this level if you are years from retirement.

Where possible, I would treat the state pension as something to boost your comfort levels, giving you more to look forward to in retirement than a monthly night out at the pub and holidays to Bognor Regis.

Breakdown of minimum income standard for pensioner couple

Item£ per week
Water rates£6.44
Household insurances£1.82
Other housing costs£4
Household goods£13.56
Household services£8.23
Personal goods and services£20.33
Other travel costs£13.51
Social and cultural participation£49.53

Source: Joseph Rowntree Foundation, July 2012