Beat pre-retirement blues with these cracking deals, writes Malcolm Wheatley.
I read some disturbing figures last week. You may have seen them too:
- 40% of 55-64 year olds are saving nothing
- 20% of 55-64 year olds still owe more than £75,000 on their mortgage
- A growing disparity between the 'haves' and the 'have-nots'
Published by insurance and investment giant Aviva, the survey found that those approaching retirement have finances that are in far worse shape than those either aged 65-74 or over 75. Yes, you read that correctly: people who haven't retired are worse off than those who have retired.
Pre-retirees (55-64) have the a lower level of savings (£8,593), a lower incidence of home ownership (76%), and a larger average mortgage (£16,694).
The report also revealed that while there is a wide divergence between the richest and poorest in all three over-55 age groups (55-64, 65-74 and over 75) the gap is at its widest among 55-64 year olds. The typical saver in this age group has a mere £8,593 stashed away.
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Yikes. At 55, I'm happy to say that I don't recognise my own finances in that picture. No mortgage, a reasonable stash of savings, and a couple of pension funds - I'm better off than many, I realise. But I do see parallels with the finances of some friends, neighbours and acquaintances.
Worries ahead
By 2011, there will be almost 18 million people in the UK who are over 55, and not surprisingly, many of these pre-retirees are worried. Very worried.
Their biggest financial worry is the rising cost of living, followed by unexpected expenses, and the falling return on savings. Also high on the list: concerns about retiring and redundancy.
Debt is a concern, too. While non-mortgage debt is not a significant issue for most people over 55, some people are still working to pay off debt. And it's those pre-retirees, again, who have the highest levels.
They're also the least likely group to own their own homes, either outright or through a mortgage. So in retirement, if the situation hasn't changed, they're going to have to either fund monthly mortgage payments, or pay rent.
Is there any hope? Well fortunately, the over-55s aren't entirely without a means of fighting back. There are some cracking deals out there if you're 50 and over, which can help boost your savings, as well as give you more money in retirement. Here's a taste of what's on offer.
Everyday banking and saving
Take the Alliance & Leicester Premier 50 Current Account, for instance - a bank account exclusively for the over-50s, comes with a great rate and extra benefits. The market leader among such accounts, it pays 6% AER (fixed for a year) on balances up to £2,500, reverting to 1% AER (variable) afterwards. Balances over £2,500 earn 0.10% AER (variable) - which is fine, because £2,500 is waaay too much to keep in a current account.
For that sort of money, it's best to use a savings account to stash away surplus dosh. And there are some serious over-50 accounts out there, although it's always best to make sure that you won't get a better deal just by going for an ordinary instant access savings account that isn't age-linked.
The Stroud & Swindon Building Society 50 Plus Notice Account is currently topping the charts, for instance, offering a reasonably tasty 3.2% AER - although the minimum deposit is £1,000, and there's a 90-day notice period.
If you're happy to lock your savings away for several years, Saga is offering a market-leading rate of 5.10% on a five year fixed rate bond. Again this deal is exclusively available to the over-50s. Just bear in mind if you make a withdrawal, a penalty equivalent to between 90 day's and 365 day's loss of interest on the amount withdrawn will be applied depending on the length of time remaining until the end of the term.
ISAs
For longer-term tax-free savings, ISAs are the way to go. Until April 5th 2010, the over-50s have a higher ISA allowance than their younger peers - they can stash away £10,200 in the present 2009-2010 tax year, of which £5,100 can be in a cash ISA. For the 2010-2011 tax year and beyond, those limits will apply to everyone.
Which cash ISA to go for? Once again Saga has come up with a competitive account with the Saga Fixed Rate ISA - which like all the company's products, is aimed at the over-50s. Paying 3.9% fixed for three years, it's an attractive tax free return, that is obtainable without risk to your capital. Although it isn't quite the market-leader - M&S is paying 4% over three years - it's still a very good rate. I'm a fan of Saga savings products which appear consistently competitive across the board.
Other good deals
Saga is a good place to start looking for other over-50 deals, too - although far from the only place. Many providers have over-50s offerings, although it pays to make sure that you're getting a deal that's genuinely better - rather than a distinctly average one dressed-up with an 'over-50' label.
And the good news is that unlike some dodgy savings accounts targeting over-50s with underwhelmingly average interest rates, products such as car and home insurance aimed at the over-50s generally are better deals.
That's because the over-50s genuinely do offer insurers a different risk profile. We drive more slowly, have had more driving experience, and stay at home more often, offering burglars fewer opportunities to make off with our goods. So shop around -- it's surprising what's on offer.
Shopping around is also good advice when it comes to annuities, as a 65-year old friend of mine has just found. Never take the deal first offered by the company managing your pension fund. Always compare it to the 'open market' annuity offers out there.
And don't forget to mention any medical conditions that might bring you an enhanced annuity - although the less cheering news is that annuity providers only offer such improved rates because they think you'll die earlier. But even being a smoker can result in a better annuity offer. And in retirement, every penny counts.
If you're over 50 and you have a specific question about managing your finances, you can ask for help tailored to your own situation from the lovemoney.com community using our excellent Q&A tool.
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