A new report has shown that the rising cost of living has caused savings levels for the over 55’s to fall by a quarter over the past year.
The average person over the age of 55 had savings of £15,262 this time last year, the new research has shown that this has now fallen to £11,153; a drop of over £4,000.
Inflation and savings
The figures are published by Aviva in their ‘Real Retirement’ report, which interviewed 12,000 people, and highlights the rising cost of living as they key factor behind the over 55’s needing to dip into their savings to meet day to day living expenses.
Although inflation fell last month, and there are signs that it will fall further into 2012, it has been above 5% for much of the last year, seriously eroding the value of savings.
The problem is compounded by all time low interest rates. Even the best savings interest rates are not enough to keep up with the levels of inflation we have seen over the past year.
Alarmingly the report showed that 1 in 10 people between the ages of 65 and 74 have no savings whatsoever.
Clive Bolton, a director at Aviva, said: “With income levels falling and inflation rising, it is going to be difficult for some people to maintain their standard of living and to secure a comfortable retirement income for themselves.”
The report also found that debt levels amongst the over 55’s were also increasing.
Excluding the money owed on mortgages, the average borrowings of a person aged over the age of 55 has risen from £19,900 this time last year to £21,900 today.
Around 10% of people aged between 65 and 74 still have a mortgage to pay, putting further pressure on their household finances despite low interest rates, which will cause even further hardship when rates eventually start to rise.
Falling Annuity rates
An Annuity rates comparison will show just how hard the over 55’s are also hit by falling Annuity rates, meaning less income in retirement.
Our own pension Annuity calculator shows that Annuity rates have fallen by over 10% in the last five months and Aviva’s report concludes that 20% of people over the retirement age are still working because they cannot afford to retire.
A separate report found that a staggering 6 million people plan to delay retirement because they cannot afford to stop working.
Late retirement planning
The Aviva report also found that the economic circumstances are not totally to blame for the current difficulties people find themselves in, with many people putting off thinking about retirement until the last minute, when for many it is too late to make any serious provision.
Aviva found that 4 out of 10 people who are “economically active” had yet to make practical preparation for retirement and that people are typically 48 years old before they start to think about retirement and it is a further four years before they take an practical steps.
However, two thirds of people said that they wished they had done more to plan for their retirement.
Mr Bolton said: “It seems today’s over-55s only started actively thinking about retirement at 48 years of age but it took them another four years before they started seriously thinking about their retirement income. This lack of preparation is likely to be linked to retirees’ biggest regret – that they wished they had saved more.”