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What your finances could really look like in retirement
Being mortgage-free and enjoying three holidays a year may be what people expect from retirement, but few are achieving it.
by Michelle McGagh on Jul 11, 2012 at 11:16
Imagine your retirement: are you picturing yourself mortgage-free, playing endless rounds of golf and with a healthy pot of money in the bank to fall back on? Well, unfortunately this isn’t the reality for most pensioners, who have often failed to pay down debt and save enough to live a worry-free retirement.
The Real Retirement report by insurer Aviva has shown that although retirement income has increased slightly, the cost of housing and debt are still the biggest costs retirees are paying out.
Since the beginning of the year, monthly retirement income has risen by 4% from £1,303 in the first three months of the year to £1,361 in last three months.
Inflation eats into incomes
Monthly income has increased £122 since February 2010, but this is not a significant amount when inflation is taken into consideration. Although inflation for over-55s has fallen from 5.41% in the last three months of 2011 to 3.21% in May this year, it is still higher than inflation for the UK population as a whole, which stands at 3.1%.
Inflation is higher for pensioners, as they spend a greater proportion of their income on food, heating and fuel than working people tend to. For example, income has risen £122 per month, but the average food bill has also risen by £17.48.
Despite the increase in income, money is still being spread thinly – especially when mortgages and debt still have to be paid. Here’s the reality of what your finances could look like in retirement.
Working in retirement
Giving up the nine-to-five at age 60 is a tantalising prospect, but the reality is that 32% of those over 55 are still getting an income from work, with 61% of 55- to 64-year-olds still working. The number of 55- to 64-year-olds working has increased, as people realise they have to work longer and early retirement is a luxury only a fortunate few can afford.
However, the number of people aged 65 and over who are working has dropped. Clive Bolton, at retirement director for Aviva UK, said many older people who wanted to work were struggling to, either due to the recession or ill health.
‘While many over-55s may wish to work beyond the traditional retirement age – either due to financial or social reasons – it appears that the current economic situation does not always make this possible,’ he said.
‘This will be particularly bad news for those people who have not made sufficient provision for later life and were counting on those extra few years to boost their inadequate savings.’
Most people hope to be mortgage-free by the time they retire, but there is still a large proportion of people who are paying off their property debt in retirement. A total of 17% of over-55s still have a mortgage, but when this is broken down by age, a quarter of 55- to 64-year-olds are still burdened by housing costs, compared with 12% of 65- to 74-year-olds and 5% of those over 75.
A total of 64% of over-55s own their home outright, but 22% of over-55s income is spent on housing costs, the largest outgoing they have. Older people who still have mortgages are working hard to pay down their debt on their home, but this is at the expense of saving for the future.
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