Being a pensioner can cost a lot more than many people think, so much so that the state pension probably won't even cover the basics. In fact, even if you've paid off your mortgage, the average annual cost of being a pensioner can add up to £10,830, or around £210 a week – yet this is some 32% more than the full state pension is able to offer, which is why many people are turning to equity release to cover the shortfall.
The figures are based on analysis from over-55s financial specialist Key Retirement, which found that the cost of spending on the basics soon spirals, with the likes of clothes, food and essential bills all adding up.
Indeed, retired households spend around 14% of their money on housing and fuel, the equivalent of £1,500 a year, with a similar amount (£1,560) spent on food and non-alcoholic drinks. Then there are transport costs to consider, which swallow up 11% of a retired household's annual spending, or around £1,200 a year, and another £1,600 of the budget goes towards leisure spending.
What with that and the range of other costs impacting retirees' budgets, it isn't hard to see how the weekly total of £210 can be hit. However, the full state pension only pays out £159.55 a week, assuming you're able to qualify for the full amount, which means there's a significant shortfall that needs to be made up.
The typical pensioner will therefore need an extra £50.45 a week of their own income to cover the shortfall, which adds up to £201.80 a month or £2,421.60 a year, highlighting the fact that solely relying on the state pension should never be an option – and that you'll want to make sure you've got your own pension provision as well.
You'll want to maximise the level of income you receive from all sources, and one of the ways you could do that is by tapping into your property wealth. Equity release could be a great way to access some of that necessary cash, allowing you to unlock some of the wealth tied up in your home; Key's data shows that retired homeowners who use equity release take an average £73,600 from their properties, which could be enough to fund more than six years of basic spending.
"The basic cost of being a pensioner at around £10,830 a year demonstrates the importance of saving for retirement and generating income on top of state pensions," said Dean Mirfin, technical director at Keyretirement.com. "Over-65s own property worth more than £1 trillion and are literally sitting on spare cash which can be used tax-free to boost their income, particularly when inflation is rising and interest rates remain at historic lows."
It's worth bearing in mind that the £10,830 figure just covers the basics, too, which may not be enough to ensure you continue to enjoy the life you've been accustomed to during your working years. This is why building up a suitable private or workplace pension is so important, but if it isn't quite up to scratch and you're still facing a shortfall, why not see if equity release is for you? It could go a long way to boosting your income and covering the rising cost of being a pensioner, so find out more about it here to see if it's worth considering.
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.