MONEYFACTS ARCHIVE. This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Derin Clark

Derin Clark

Online Reporter
Published: 11/03/2019

Over half (52%) of people aged 40-60 are worried about affording retirement, according to research from Nationwide Building Society, with 43% not believing that they will be able to afford the retirement lifestyle they want.

In addition to this, the research revealed that future pensioners risk a shortfall of more than £68,000 over the course of their retirement, with 33% of those in middle age expecting to survive solely on their state pension once they finish work.

Expectations vs. reality

Many are aware that they may be out of pocket when they reach retirement, with those in middle age expecting their monthly shortfall to reach an average of £208 in their post-work years. This equates to a lifetime deficit of £37,440, when taking into consideration the current retirement age and average life expectancy.

The reality, however, could be even bleaker, with monthly shortfalls projected to be around twice as high: those polled who are aged 60+ and already in retirement said they receive £505 a month in state pension on average, but require £885 a month to live on. For those without any additional pension provision to cover the extra expenditure, this could leave them with a shortfall of £380 a month, or £4,560 a year – which over the course of a 15-year retirement could add up to a potential shortfall of £68,400. It is important to note that these figures are based on the current income gained from the old state pension, however the new flat rate State Pension is £164 per week, which is £656 a month. While the new flat rate State Pension may reduce the shortfall slightly it is clear that those in middle age will likely not have enough income to sustain their lifestyle once they retire.

Plug the gap

However, all may not be lost, as people in retirement have often accumulated a number of assets over the course of their lifetime that they can use to increase their retirement income, their home being one of them. Last month Moneyfacts.co.uk reported on the growth of equity release products over the last five years due to increasing demand from consumers looking to release cash from their homes, with the figures showing that today there are 200 lifetime equity release deals on the market compared to the 40 products available in 2014.

Despite this growth, equity release is still an option many are cautious about. The research by Nationwide found that those in middle age have an average of £125,350 equity currently in their home, yet many would try and find other ways to survive before tapping into their property wealth. Indeed, 32% see accessing equity in their property as a last resort, while 28% don't want to leave any debt to their family, and 24% wouldn't know who to approach if they needed advice on their retirement.

Rachel Springall, finance expert at Moneyfacts.co.uk, said: "It is worth keeping in mind that equity release is not solely aimed at the 'equity rich but cash-poor' or for those looking to plug the gap of their later life care costs. These mortgages could be an option for those hoping to soften any inheritance tax blow, while lifetime mortgages may also be an alternative to borrowers who have considered downsizing, but who do not want to move and pay stamp duty."

Jason Hurwood, Nationwide's director of home propositions, added: "We are living longer and need more money to keep us going. The reality is that without adequate income, and potentially living a third of our lives in retirement, older people risk missing out at a time in life when they want to relax and enjoy themselves…Recalibrating the relationship between our money, our expectations and our assets is key to unlocking a retirement that is comfortable."

What next?

If you are considering equity release, you can compare some of the options available on the Moneyfacts.co.uk equity release page or call Moneyfacts' trusted broker MCB Financial Services Ltd on 0800 193 0036.

Disclaimer

Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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