Research from pension firm Aviva shows average incomes for the over-55s have fallen by 4% over the past year, while savings levels have dropped by more than a quarter.
Best savings interest rates still not enough
The report which highlights the financial challenges of retirement, found the typical person over 55 now has £11,153 in savings, 27% lower than December 2010. One in seven people over 55 have no savings at all, while even those who are saving are putting less aside every month.
Savings have been eroded in many cases due to rising prices eating into fixed incomes and meaning that savings have had to be used to meet day to day living expenses.
A combination of high inflation and low interest rates has also eroded the real value of savings. For most of 2011 even the best savings interest rates have been below inflation meaning that the buying power of capital has fallen.
Over the last two years, Aviva tracked the income and spending of 11,600 people either in retirement or who were nearing retirement. They found that 1 in 10 of the over-55s are surviving on less than £500 a month.
To cope with the fall in income and rising inflation some 65-74 year olds are working into ‘retirement’ as well as taking a pension. The average monthly income of the over-55s now stands at £1,285 down by 4% from last year.
Clive Bolton, director at Aviva said: “The over-55s have seen their finances deteriorate over the last quarter as people struggle to keep up with the rising cost of living on a relatively fixed income. That almost a quarter of this age group have less than £500 in savings and 40% save nothing each month is a clear indication that this age group is struggling financially.”
He added: “While there is a limited amount that the long-term retired can do to improve their finances, these figures highlight the importance of a lifetime approach to retirement planning. Taking out a private pension, building up a respectable savings pot and paying down debt are all simple steps that people can take to ensure they don’t face these problems in retirement.”
Falling Annuity rates
Aviva said its quarterly tracking of income levels has found a consistent “retirement bounce” at age 65, when payouts from state and company pensions lift incomes.
However people nearing retirement are being hit by a double whammy of reduced fund values due to negative stockmarket performance and falling Annuity rates.
An Annuity rates comparison shows that Annuity rates have fallen by over 10% on the last six months of 2011, mainly due to lower gilt yields.