More and more over 55s having to dip into their rainy day investments and savings, research shows

News - Savings

Written by Ray Clancy

Wednesday, 08 September 2010 08:33

Over 55s see unexpected expenses eating into their savings as more are forced use rainy day cash to maintain their lifestyle.

New research from Aviva shows that a quarter of over 55s are being forced to dip into income generating savings to pay for unexpected expenses.

Some 92% of over 55s have faced unexpected expenses in the last five years. And over the next five years some 64% of people over 55 fear the rising cost of living more than anything else. This is a significant increase from the last report in May which showed 18%.

Aviva says that this rise in concern underlines how the fallout from the recent economic turmoil and the current environment of Government cost savings have impacted on this age group’s hopes and fears.

The report shows that despite the large number of over 55s having had to pay out for unexpected expenses, over half, 55%, have not made any provision for these unplanned outlays. Indeed, only 6% have made any provision for long term care, 9% for private medical care and 23% for the upkeep of their homes.

Some 45% of over 55s funded their unexpected expenses by dipping into emergency savings funds, 25% used income generating savings, 17% cut back in other areas, 11% took out a credit card or loan and 6% sold assets.

The long term retired, who have been economically inactive for an average of 12 years, were most likely to dip into their income generating savings, 27%, and least likely to use emergency savings, 38%. This might suggest some over 75s have used up their rainy day savings in early retirement and are now forced to sacrifice potential future income to pay for immediate expenses, Aviva said.

While the average pensioner saw their monthly income remain steady at £1,313, there are extremes of rich and poor. The majority, 59%, of households have a monthly income of between £751 and £2,500 per month, the UK is also home to some relatively well off over 55s with 21% on more than £2,501 and other over 55s who are struggling with 21% on less than £750.

The largest single source of income for the over 55 age group is the state pension, 24%. However, while the 65 to 74 year olds and over 75s are heavily reliant on this form of government funding at 30% and 35% respectively, the more economically active 55 to 64 year olds rely on their own earned income. Low interest rates are a real concern for many people.

The pre-retirees aged 55 to 64 are also significantly more reliant on benefits than the older age groups, indicating higher levels of involuntary unemployment and redundancy.

The number of people reliant on income from rental property has fallen from 2% in May to 1%, potentially as a result of the current speculation around Capital Gains Tax and its implications for residential property. ‘However, with 66% of people of all ages saying that they believe that property is a better investment for the future than a pension, we may see a growing reliance on this income source over the next few years,’ the Aviva report says.

‘Over the last thirty years, people have generally seen retirement as an opportunity to relax after a long working life and enjoy the fruits of their labour. However, when you consider that for a savings pot of £16,296, you would get an annual gross income of just £117 from the standard branch based notice account, you can understand why many over 55s are very worried about their finances. In fact these figures reveal that one in five over 55 households is struggling to get by on almost a third of the national average income,’ Aviva adds.

‘Retirement income is also relatively fixed which is why any rise in the cost of living is particularly concerning for this age group. This coupled with the fact that people often have to pay for unexpected expenses for which they have made no provision highlights how vitally important it is to build up retirement savings over your entire life,’ it concludes.