Moneyfacts.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfacts.co.uk will always be from firstname.lastname@example.org. Be Scamsmart.
A new report from The London Institute of Banking & Finance and Seven Investment Management (7IM) raises concerns over the readiness among those nearing retirement for their post-work life. It points to "longevity and a decade of historically low interest rates" as a "dangerous cocktail" for this generation.
They surveyed people over 50 with at least £50,000 in assets (including their home and pension savings) and found that only 50% feel well prepared for when they stop working, while 35% worry about how they will manage financially in retirement. Perhaps because of this, 38% said they are going to have to work longer than planned and 47% said they need to save more.
While we have a guide on starting your pension at 40, it's generally thought that the sooner you can start saving for your retirement, the better. Once you hit 50, you should generally have the majority of your retirement savings in place, or risk falling short.
The findings show that the average value of assets among this cohort is £523,857, which includes property and pensions. With many wanting to leave their property for an inheritance, despite it often making up more than half of the value, this means that there's much less than the average available for later life.
Only 5% considered downsizing to release some wealth from their property for later life, while just 8% thought about equity release. Considering you can easily get an equity release mortgage whereby part of the property value is ring-fenced for inheritance purposes, this means that people could be missing out on some great options for funding later life.
It may be due to a lack of financial advice that people are limiting their options, as only 20% have sought professional advice. This is despite 73% acknowledging that preparing financially for the future is an important objective and 72% realising that they will likely have to pay for it themselves.
Another potential issue may be that while this generation is certainly cash conscious, with most having a strong grip on their budget, they are very cautious investors. Because of this, 83% are comfortable putting their money into cash ISAs and 74% are happy to trust NS&I with their cash, but only 39% have faith in investment trusts or funds while just 40% are comfortable with stocks and shares.
"This generation has been badly let down by a perceived absence of affordable financial advice and a lack of financial education," Justin Urquhart Stewart of 7IM said. "Many people have been cautiously squirrelling their money away into cash savings products at the time when they could have been thinking about investment risk and the power of compounding returns.
"Whilst investment risk might not be for everyone, and we all know that stellar stock markets gains can easily be reversed, too much caution can actually cost as inflation has outstripped cash returns – something many people are worrying about themselves." So, while cash is certainly safer, investing in your workplace pension and/or a stocks & shares ISA now could offer larger returns in 10 years' time, or whenever you are ready to retire.
Justin warns: "Longevity means [over-50s] need their retirement savings to stretch further than any generation before them – over 20 years for today's 65-year-olds, on average. The findings show that the financial situation for a large number of over-50s is far more precarious than was previously recognised."
If you're less than two decades away from retirement, there's no better time than now to see how you're doing. Do you have a plan in place that will allow you to have enough for at least 20 years of retirement income? If not, you might want to talk to a professional to see what your options are, or consider equity release.
For those about ready to retire and looking for the security of a set retirement income for however long you may live, don't forget about annuities.
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. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfacts.co.uk will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.