Your income may fall 50% in retirement

ATM

You may have a sinking feeling that you haven't saved enough for retirement, but the chances are that you're massively underestimating the scale of the problem. A new study has shown that we will all see our income fall at least a third when we stop work, and that some people will lose half their income.

So where has it all gone wrong?
%VIRTUAL-SkimlinksPromo%

Income destroyed

Most of us expect to earn less in retirement, but it's going to come as a nasty shock when we realise exactly how much less we will have to live on. Annuity provider, Partnership, found that on average income will fall 38.5% the day you retire - to £11,600.

Andrew Megson, Managing Director of Retirement at Partnership, said: "While people in retirement are likely to have fewer outgoings, it is still hard to imagine that anyone would not feel the pinch if they lost a third of their income over night. Even if their pension is topped up by income from savings and investments or part-time work, it is still likely to be quite a shock."

Free guide to income tax relief

In some parts of the country the numbers are even more terrifying. In London incomes will fall 48%, while in the East of England and the South East they will fall 40%. In terms of counties, there will be plenty of pain in Buckinghamshire where incomes will drop 45%, Cambridgeshire, where they will fall 44%, and Leicestershire where they will be down 42%.

10 tips to improving your pension

Why?

Tom McPhail, Head of Research at Hargreaves Lansdown says he isn't surprised by these figures. He adds: "Most people significantly underestimate both how long they will live in retirement and how much money they are going to need to live on. Typically, they start too late, save too little and expect too much."

Partnership warned that anyone relying on pensions needs to pull out all the stops to bolster their retirement income while they still can. McPhail said: "Everyone should take the time to find out how much is being paid into their retirement savings, what kind of income it might produce and when they can expect to retire. A comfortable retirement won't happen by accident."

The penalties for failure are severe, as McPhail points out: "We anticipate that within a few years, retirement at 70 will become the norm unless people plan ahead."

6 PHOTOS
Seven retirement nightmares
See Gallery
Your income may fall 50% in retirement
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.

The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS).

Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of £22,330. Whether you are retired or not, the best way to tackle debt problems is head on.

Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors.

Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.

.

The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.

The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.
HIDE CAPTION
SHOW CAPTION
of
SEE ALL
BACK TO SLIDE


More stories
Read Full Story

FROM OUR PARTNERS