Old couple dangling feet in river

How financial security for elderly people can be ensured

Too many people lose financial security as they age. They may not have saved enough money, they may not understand the requirements for their State Pension, or they may have failed to plan in other ways. This can lead to forced downsizing, the inability to retire while still healthy, and an increased burden on younger family members.

Whether you are the older person or their family member(s), ensuring financial security needs to be a priority. Here are some things you might need to consider.

Understanding Your State Pension

According to a recent government study, 20% of future retirees are misinformed about when they can obtain their State Pension. And, unfortunately, a lot of people think they can rely on it. You start getting your state pension at, currently, 66, although this age is increasing. Deferring your state pension also results in higher payments, but may increase your tax burden. The normal state pension is £221.20 a week at the time of writing, but it might be affected by National Insurance qualifying years and additional state pension payments prior to 2016. If you worked overseas, you may not be eligible for the full amount as many expats don’t pay into National Insurance (especially if they are facing a tax burden from the country they are resident in).

The State Pension is not automatic and has to be claimed. This is money you are entitled to and while it’s not enough for most to survive on, you should claim it. You no longer have to stop working when you start claiming it.

Assessing Your Current Wealth

Do you actually know what you are “worth”? Many people don’t, or they only know what they have in savings. Everyone has net wealth (also called net worth). This means the total value of your financial assets minus your debts.

To assess your net wealth, you start by adding together the money you have and anything saleable that’s worth a significant value. This includes:

  • Money in bank accounts, including chequeing and savings accounts
  • Any stocks, bonds, or similar you might own
  • The value of your car or cars
  • A stake in a business
  • The value of your home
  • The value of any other items of significant value, such as jewellery and antiques.
  • The value of pension plans and life insurance policies that can potentially be liquidated.

Basically, you start with how much money you would have if you sold everything. Then you subtract your liabilities, which include:

  • Personal loans, car loans, etc
  • Student loans
  • Outstanding mortgage
  • Credit card bills
  • Utility bills and other financial obligations

Your net worth is what is left…and it can be negative. You do not want negative net worth. Paying off loans helps your net worth. Taking out a reverse mortgage reduces your equity in your property in exchange for cash.

A lot of your net worth is likely tied up in your home and only available if you take out a reverse mortgage or sell your home and purchase a smaller property. Having to sell your home to survive is a scenario best avoided.

How Much Do You Need To Retire?

Unfortunately, inflation has elevated the amount you need to retire. Two other things affect how much you need. The first is your desired lifestyle. Somebody who wants to potter around in the garden needs less money than somebody eying that month long cruise your employer would never let you take.

In 2023, studies estimated that the minimum income you need to retire is £12,800, or £19,900 for a couple. Note that this is more than the full state pension. And these minimum amounts assume that you eat frugally, don’t have a car, take only short vacations, work until 67 and have, crucially, paid off your mortgage. There are two other tiers – moderate is £23,300 a year for a single person and comfortable is £37,300. For this, experts recommend that you have £500,000 saved by the age of 67.

So you need to think about what you want to do when retired. Comfortable means a nice house, regular vacations, plus a fairly nice car. Likely your costs will be somewhere between those ranges…for example, you might be taking that three week cruise, but might have decided you never want to drive again and will sell your car.

The other thing to consider is your projected lifespan. This is probably something you don’t want to think about, but you should look at how long your older relatives lived and allow for something similar.

What Can You Do To Increase Your Retirement Income?

Most people rely on a combination of state and employer pensions with some supplementation from saving. Saving is the obvious way to increase things, but with the cost of living the way it is, you may not be able to save enough. So, what else can you do?

Here are some of our tips:

  1. Make sure you have tracked down all of your money. You may have pension policies from employers from twenty years ago when you used a different name. The Pension Tracing Service can help here.
  2. Don’t use your occupational pension as an emergency fund. Government studies have shown that 56% of people accessing their pensions for the first time in 2019 and 2020 withdrew the full amount, leaving themselves with nothing for later in their retirement.
  3. Clear debts, including mortgages, as quickly as you can. Paying off debts increases your overall worth and reduces interest payments. Avoid taking out a new mortgage at an older age if you can.
  4. If you can afford to, increase your contributions to your occupational pension, which will then increase the amount you make in retirement.
  5. Invest appropriately. The younger you are, the longer the timeframe, and the less risk you should take.

Continuing working later is an option, but may or may not be one you want to pursue, depending on your health and your enjoyment of and commitment to work.

If you aren’t sure whether you can retire or need help increasing your income to fund the retirement lifestyle you desire, FH Manning can help. Our retirement planning services will help you develop a plan to ensure your income is sustainable. We review all assets, not just pensions, to create the right plan for you. Furthermore, we have been recognised as an ‘Age friendly business,’ something which we are exceptionally proud of. If you would like to sign up to our newsletter for regular updates and financial insights, click here. You can also complete our free ‘Are you ready for retirement?‘ quiz or email us to get a link to our video boxsets on State pensions and flexibly accessing pensions.

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