Tilney’s report, The Cost of Tomorrow, analyses Office of National Statistics (ONS) data and finds that the average adult will hit the £1m household spending milestone at the age of 50, and still face the prospect of £893,500 of spending in later life. Almost half of this, £420,500, will be incurred during retirement (65+). But pre-retirees, aged 45 to 65, are underestimating retirement spending by £100,000, exposing the pressure their savings and investments may come under in later life.

The vast majority of over 45 year olds believe they will either improve (36 per cent) or maintain (48 per cent) living standards in retirement, but Tilney’s evidence shows they are underestimating their retirement budget by almost £100,000. They expect to spend £16,456 per year, a total of £325,800, but will actually spend £420,500.

While this shortfall shows that retirees spend more than most people might expect to when they retire, it is also a red flag that people may not be putting enough aside for their later years.

An average household will spend £26,500 every year between 65 and 75, and will need access to a post-tax income of £14,100 over and above the combined state pension of £12,407 to sustain these spending levels. For wealthier households, the annual spend in today’s money for the first 10 years of retirement is £43,300, leaving a significant post-tax and state pension income shortfall of £30,900.

Andy Cowan, head of financial planning at Tilney, said: “The sums we spend over our lifetimes when quantified in today’s prices seem mind-bogglingly large, and yet they reflect the reality of life in Britain today. The top quarter of households splash nearly £3m in total, much of which is when they are no longer working and can really enjoy the fruits of their labours. But while some of today’s retirees are in a position to enjoy recreation and achieve their desired lifestyle, those coming behind face significant pressures on retirement income and much greater uncertainty because of the demise of traditional, predictable final salary pensions, and must overcome a number of hurdles if they want to ensure they can live with financial security in their own retirement.

“The key to enjoying a comfortable or even prosperous lifestyle in later life when you are no longer earning is, of course, to plan ahead and to start investing as early as possible. People set expectations for their living standards in retirement during their peak earning years in their 50s, and this is the time when most ramp up saving, but it is also important to invest it in the right places and minimise the burden of tax. Taking advice on how to do this effectively is vital to ensure our aspirations can be realised.”