Money

Decrease in Monthly Income for over 55s

The typical monthly income for the UK’s over-55s has fallen to £1,216 (September 2011). This is now at the lowest level recorded since the first RRR in February 2010 when the average income was £1,250. For those aged 75 and over the average income is now just £999 a month, but most worrying is that almost one quarter (23%) of all over-55s now say they survive on an income of less than £750 per month.  

The reasons behind this become clear when the continued impact of low savings rates are factored in. Sustained low and falling savings and low annuity rates hit those who rely on savings income the hardest, typically, those who have retired. Low rates on savings means people receive less money on their capital, and they could eventually have to dip into the capital itself to make ends meet.

The figures in the Report show that the over-55s typically have £10,468 in savings at present, which is 12% lower than in June (£11,907). However, a quarter of over-55s now have less than £500 in savings.

On top of this, there is the added impact of the increases to the rate of retail price inflation. This means that as the cost of essential goods rises, people have less ‘spare’ income available. This is of particular importance to the over-55s whose typical ‘shopping basket’ has a different bias to the general population and means that they are more susceptible to price rises in the costs of certain specific goods and services. For example, while 59% of over-55s own their own home without a mortgage, they are unlikely to benefit from the fact that housing inflation is only 1.39% at the moment. But on the other hand, they spend a significant amount of their income on food (15%) and fuel and light (9%) so inflation on these costs (food – 7% and fuel and light – 9%) will have a greater impact on them. Therefore, it is no major surprise to find that 73% of over-55s are worried about the rising cost of living.

Less money in your pocket

The knock-on effects of the fall in savings rates and inflation is that the over-55s have less money in their pocket. This can restrict the range of activities people engage in but can also be a problem when faced with infrequent ‘big-ticket’ items such as appliance purchases or unexpected bills. As such, it would be expected that the over-55s face an increase in debt levels as they are forced to borrow in order to meet these costs. Unfortunately, this has proved to be the case according to the latest Real Retirement Report. While the majority of over-55s are not in debt, those who are in debt owe on average £20,001, which is up from £17,112 in May 2011.

It's not all doom and gloom

The options for the long-term retired to improve their finances are more restricted, but there are products such as equity release which can boost income levels while enabling retirees to stay in their own homes. Overall, these figures highlight the importance of a lifetime approach to retirement planning. Taking out a private pension, building up a respectable savings pot and paying down debt are all simple steps that people can take to ensure they don’t face these problems in retirement.