The latest Aviva Real Retirement Report has painted a stark picture of the financial hardship many people will face in retirement.
The report splits the over 55’s into three groups:
- Pre retirees, aged 55 to 64
- Retiring, aged 65 to 74
- Long term retired, aged 75 and older
The plight of older generations has been well documented over the past few years. Rising inflation, all time low interest rates on savings accounts, stock market volatility, and plummeting gilt and Annuity rates have combined to cause significant financial hardship to all three of the groups identified by Aviva.
Perhaps the most startling findings relate to the slump in the level of savings and the rise in the amount of unsecured debt owed by the over 55’s. Amongst other things, Aviva’s report found:
- Increased spending on items such as housing, food and transport is squeezing monthly budgets
- The average over 55 year old has more unsecured debt than this time two years ago and has seen a 4% increase on this time last year. A typical over 55 borrower, now owes just over £23,000 in unsecured borrowing, an increase of 36% on May 2011
- The rising cost of living, coupled with greater unsecured credit, is forcing older generations to raid their savings. The average level of savings amongst over 55’s has fallen significantly from £18,364 this time last year to £11,764 today
- Despite these findings, the percentage of over 55’s making monthly savings has actually increased. In May 2012 42% of over 55’s saved nothing on a monthly basis, a year later this had dropped to 35%, with 55-64 year olds, the so called ‘pre retirees’, leading the way as they try and build a larger nest egg for retirement
- As a result of stock market volatility and falling savings interest rates, the number of retirees using their savings and investments to provide an income has reduced from 30% in May 2010 to 24% in 2013
- The government’s austerity programme is also having a clear affect. The number of over 55’s including state benefits as a source of income has dropped by around a third over the past three years
Commenting on the report Aviva’s Clive Bolton said: “For many people short-term borrowing is a necessary step to manage living costs, deal with unexpected expenses or treat themselves to a holiday. But when their daily outgoings are stretched so far by the demands of basic essentials such as housing, food and travel, they can find that regular repayments are difficult to maintain.”
“It is encouraging to see more people putting more money away as they approach retirement, as savings pots are often relied on to clear existing debts. So as not to erode their savings, it is important that over-55s view all of the assets available to them holistically, including their housing wealth, to improve their financial freedom.”
Planning for retirement
The report emphasises the importance of planning in the years leading up to retirement.
There are many steps people should be taking in the months and years before they plan to retire, including:
- Confirming the level of State Pension they will be entitled to and from what age it will become payable
- Planning a careful budget, detailing as accurately as possible their likely monthly expenditure in retirement. One off capital expenses, such as holidays, replacement cars and home improvements, should also be factored in
- Analyse how much income will be available in retirement and compare this to the anticipated level of expenditure
- Make full use of tax-efficient savings options such as pensions and ISAs (Individual Savings Accounts)
- Make a plan to have all debt repaid, including any mortgages, before retirement
Of course inflation also needs to be factored in, both in the years leading up to retirement and afterwards. A fixed income can leave retirees horribly exposed to even moderate price rises over a lengthy period of time.