Across the UK, millions of people in their fifties and sixties are waking up to the painful consequences of a “mid-life crisis” in savings. With wages failing to grow substantially and living costs rising, many are sleepwalking towards an uncomfortable or even impoverished retirement.
Some research even suggests that as many as one in five people in their fifties or sixties do not know how much money they need to achieve their desired retirement lifestyle. If you think you might be heading for a mid-life savings crisis, the important thing is to not give up hope or think it is too late to turn things around.
Admittedly, starting to build up your pension pot now is going to be a lot harder for most people in their fifties, compared to those who started much earlier in their twenties. Yet it is vital that you make use of your remaining years in employment to save for retirement. Even a few years of saving can make a big difference.
Options for Over-Fifties Facing the Squeeze
Although we cannot cover everything in this article, here are some options which you might want to consider with the help of an independent financial adviser:
Ascertain your state pension
A hugely important part of your retirement income is likely to come from your state pension. In 2019-20 the current state pension age is 65 for men and women, which is set to rise to 66 in October next year.
For those set to receive the full new State Pension, this will amount to £168.60 per week – which is about £8,767.20 per year. This is unlikely to be enough for most people to live on, but it certainly helps. However, bear in mind that your state pension might not amount to this.
To get the full new State Pension you need at last 35 years of qualifying National Insurance contributions. It might be, for instance, that you are in your fifties and have so far only built up twenty years of qualifying contributions.
If so, then you should check your State Pension on the UK government’s website to find out how many more years of qualifying contributions you need to make, in order to receive the full state pension.
Bear in mind that this process can be quite complicated, and you might benefit from the help of a professional financial adviser to help you gather this and other important information which you are going to need.
Check your existing pension schemes/pots
It’s quite possible that you have more pension savings than you realise. Many of us change careers multiple times throughout our lives, and build up pension pots through previous jobs which we later forget exist.
Bear in mind that if you left an employer before 1988, then it is quite likely that any pension contributions you made to the company scheme were refunded to you. This isn’t always the case, but it’s a good idea to check your bank records to determine whether any refunds were made from your past employers.
Once you have listed your previous employers where you might have possibly built up a pension, you can ascertain the state of the pension pot by contacting the different pension providers. You can start this process yourself online, but again it is usually much more effective to walk through this process with a financial adviser who can help ensure you do not miss anything.
These two initial steps – finding out your state pension and existing pots – are essential, as determining where you currently stand with your retirement savings is crucial to pulling a strategy together to get you where you want to be.
Options for homeowners
This can be an emotional topic for many people, but if you own your own home and need to free up some cash for retirement then either downsizing or equity release could be an option.
The former option is often painful as we tend to attach great importance to our family home, and the memories built up there. However, if you really are boxed into a corner when facing your future retirement income, it might be the best decision. It isn’t straightforward, however, and it’s not the right decision for everyone.
Equity release could be another option if you want to keep living in your home whilst freeing up cash for your retirement – particularly if you have no future beneficiaries to leave your estate to. However, this is a complex area to navigate on your own and it’s easy to make costly financial mistakes which you might later regret.
In either case, make sure you speak to a financial adviser to weigh up your options.
Pull a Plan Together
Once you know roughly where you are with your retirement savings, it’s important to figure out how much you need to save in order to meet any shortfall. Once you have this crucial goal in mind, you can then start pulling a financial plan together to set you in motion towards achieving it.
So, how much will you need in retirement? Everyone is different and there is no set answer. As a general guide, however, most people will need at least two-thirds of their pre-retirement salary to keep their lifestyle going. Another benchmark is at least £18,000 in today’s money, which should cover most people’s essential living costs such as bills. However, you might need a lot more than this depending on your specific lifestyle and retirement goals.
The best way forward here is to sit down with an independent financial adviser, to determine how much you will need in retirement. They will also be able to help you determine whether you are on track to achieve this, and what your options are if not.