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Could you get by on just £27 a month of disposable income?
You can easily blow £27 in one night in the pub, so imagine if that money had to last you the whole month – how would you get on?
by Michelle McGagh on Jul 31, 2012 at 10:49
People aged 55 and over have an average of just £27 a month in disposable income, forcing many to dip into their savings or cut back in order to prevent them falling into the red.
Figures from Aviva show people over 55 have just a small amount of money to live on each month that would fail to cover a financial emergency.
People aged 55 to 64 are in the worst position: they have an average income of £1,359 but monthly outgoings of £1,409 – a shortfall of £50 each month.
As people reach the 65 to 74 age bracket the shortfall drops slightly to £30, but the average person isn’t back in the black until they are over 75, when the average person has £39 in their pocket each month.
This monthly deficit that many people face each month can add up to a big problem. Once someone turns 55, they will typically earn an income of £472,224 in their remaining years of employment and retirement. However, over this period their expenditure tops £477,612 – a shortfall of £5,388.
This discrepancy between incomings and outgoings will force older people whose pensions are insufficient to cover their costs to raid their savings on a monthly basis.
This also affects retirees’ ability to pay for their long-term care should they need it, or make adaptations to their own homes in order to continue living there.
Roger Marsden, head of at-retirement at Aviva, said: ‘For many over-55s the current financial equation does not add up. No-one wants to spend their retirement constantly scrimping and saving to meet their monthly financial obligations while worrying about how they will cope with unexpected expenses.’
Marsden said that younger people should tackle under-saving now and increase the amount of money they put away for old age. However, he acknowledged that for over-55s it is too late to start saving more.
He recommended people look at releasing cash from their homes in the form of equity release – essentially a loan that uses your home as collateral.
Aviva data shows 81% of over-55s own their own home, which has an average value of £236,474 either with a mortgage or without. The insurer estimates that the average homeowner has nearly £250,000 of equity in their property which they could access.
Marsden said people should ‘consider all their assets, including their homes, when they are planning their retirement’, although noted that equity release ‘is not right for everyone’.
To find out more about equity release, read this guide from The Lolly.
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