New research reveals that a worryingly high percentage of people could be facing a tough retirement.
Nearly half of over-55s have £500 or less saved up, according to the latest statistics in insurer Aviva’s ongoing Real Retirement Report series.
The alarming number comes as older people’s incomes continue to fall, pushed downwards by a combination of rising inflation and benefit cuts.
Higher prices and fewer benefits
In terms of inflation, the report highlights the rising cost of food; clothing and footwear; and entertainment, recreation and holidays.
The report highlights that 19% of over-55s received benefits in December 2012, but this has now fallen to 15%.
And looking much further ahead, there’s the prospect that the State Pension age may be raised again to rein in Government spending.
That suggests a real danger of some of the current group of pre-retirees ‘sleepwalking’ into a lower income and possibly curtailed retirement, as they are forced to work for longer.
Worryingly, the typical monthly amount being saved by the 55-64 age group has fallen from £39 in September last year to £33 now, although that’s not a surprise given increasing inflation.
If you’re worried about your retirement income, here are options beyond carrying on working.
Make cutbacks and pay off debts or start saving now
You might already have cut back as far as you can. If you haven’t, and you’re struggling, then it’s time to take a look at your household budget.
[SPOTLIGHT]Write down all your spending for a month and take a look at areas where you might be able to save money.
For example, can you use your car less, or stop eating out? It’s tough, but short-term pain can reap long-term gain.
And can you save money by switching your gas and electricity supplier, home insurance, car insurance and other household bills such as your home phone? Spend an hour or two shopping around and see if you can save.
If you have debts, then your priority should be to pay them off while you have an income.
Otherwise, you should look to build up some savings. While savings rates are at rock bottom at the moment, hopefully this situation won’t continue indefinitely.
Shop around for the best rates using a savings comparison service such as ours on lovemoney.com. Remember your tax-free ISA allowance too, which is currently up to £11,520 a year, of which half can be saved in cash.
Make sure you’re claiming all your benefits
Research suggests that pensioners are missing out on around £5 billion a year by not claiming all the benefits they’re entitled to. The GOV.UK Benefits Adviser can help you find out if you’re eligible for benefits such as Pensions Credit, housing benefit and Council Tax benefit.
Use your home
If you could live comfortably in a smaller home, then downsizing is definitely an option. If you really need to raise some money then moving away to a cheaper area could pay off your debts and perhaps provide a small nest egg. But bear in mind that if you’re moving to somewhere unfamiliar you will need to make friends all over again and you could be far away from close family.
You don’t have to sell your home to downsize – you could rent it out and rent a smaller place. But make sure you tell your lender.
Or you could rent out a room, and if you earn £4,250 or less in a year the money’s tax free. For more on this, read Rent A Room scheme: tax-free cash from your spare room.
There’s also equity release, where you use the value of your home to give you an income but you continue to live there until you either go into long-term care or die.
However, this can wipe out the value of your home as a result of you paying interest on the amount you’ve borrowed. Or you could end up selling the ‘equity’ of your home for well below what it would be worth if you sold the home on the open market. For more, read The pros and cons of equity release.