Rising Concerns of Paying Bills in Retirement

In a world where retirement is often longed for and has the perception that it’s a time for enjoyment, travelling and having fun, recent research by Opinium for Hargreaves Lansdown highlights a contrasting picture.

A significant portion of the UK population, particularly those in the 35-54 age bracket, express concerns over the practicalities of their retirement, chiefly their ability to cover their bills in retirement. What are the challenges and what are the implications? How can you save for retirement? We take a look.

Perception of Retirement Readiness

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, emphasised the importance of periodically reviewing retirement goals.

Alarmingly, only 61% of participants believe that covering their bills in retirement is a reasonable expectation. This perspective clearly doesn’t paint an idyllic retirement dream picture.

Table 1: Confidence in Retirement Readiness by Age Group

Age GroupPercentage Confident in Covering Bills in Retirement
Over 55s66%

Age Group Challenges Over Paying Bills in Retirement

How do you want to pay?

Unsettlingly, the age group of 35-54 shows the greatest pessimism regarding their retirement. Only 23% of them feel confident about maintaining a comfortable lifestyle without constant financial worries.

Table 2: Financial Confidence Post-Retirement

Parameter35-54Over 55s18-34
Confident of Worry-Free Retirement Lifestyle23%29%35%
Adequate Money for Emergencies39%46%51%

Challenges for the 35-54 Age Group

The financial constraints of the 35-54 age group are significant. This group often has to cover both mortgage repayments and the expenses of raising children at the same time.

The current cost of living crisis, escalating the price of essentials, further hits their financial tightness, making it challenging to save money for their future.

Rethinking Retirement

With these pressures over bills in retirement, there’s a clear shifting in the dynamics of retirement with older workers, who’d taken retirement during the pandemic, often going back to the workplace as their retirement costs surge.

Continuation of work into what was once considered ‘retirement age’, even if part-time, is likely to be a more frequent sight in the future.

Hope for the Younger Population

Working at a desk wearing headphones

It isn’t though all gloom and doom.

Younger age groups have the opportunity to support and grow their pensions.

Whilst current times may be a financial challenge for many, looking forward to such as pay rises or job changes can substantially bolster pension pots.

If you’re enrolled in schemes where employers match contribution increments, the future looks brighter. Such boosts can reinforce confidence in not just managing the basics post-retirement, but also being able to take such as holidays and pursue hobbies.

What Kind of Lifestyle Can You Expect in Retirement?

Retirement Living Standards have been developed to help picture what kind of lifestyle can be had in retirement.

They provide a rule of thumb for retirement spending, giving examples of what retirement could look like at three different levels of lifestyle:

  • Minimum
    • Covers basic needs plus enough for a week’s holiday in the UK
    • Eating out about once a month
    • It doesn’t budget for running a car.
  • Moderate
    • This is in addition to the minimum lifestyle and it provides more financial security and more flexibility.
    • Approx half of single employees expect a lifestyle between the minimum and moderate levels.
  • Comfortable
    • This level provides luxuries like regular beauty treatments, theatre trips and three weeks holiday in Europe a year at this level.

How Can You Save For Your Retirement in the UK?

A retirement planning advisor

There are various ways to save for retirement:

1. Workplace Pensions:

  • Auto-enrolment:
    • Employers are required to automatically enrol their eligible employees into a pension scheme.
    • Both you as the employee and your employer contribute, and tax relief is added by the government.
  • Defined Benefit (DB) Schemes:
    • Often called “final salary” schemes, they are becoming less common.
    • Your pension is calculated based on your salary and how long you’ve been a part of the scheme.
  • Defined Contribution (DC) Schemes:
    • Your pension pot builds up based on how much you and, if applicable, your employer contributes.
    • The money is usually invested, and the amount you get upon retirement depends on how much was contributed and how well the investments performed.

2. Personal Pensions:

  • Standard Personal Pensions:
    • These are offered by pension providers, and you can contribute as much as you want within the annual allowance.
    • Your pension provider will claim tax relief for you and add it to your pension pot.
  • Stakeholder Pensions:
    • A type of personal pension with capped charges and flexible contribution terms.
    • Suitable for people with variable income or those who want to start with low contributions.
  • Self-invested Personal Pensions (SIPPs):
    • A type of pension that provides a wide range of investment choices.
    • SIPPs might suit those who are experienced in investing and want more control over their pension pot’s investments.

3. State Pension:

  • The State Pension is a regular payment from the UK government.
  • The amount you receive is based on your National Insurance (NI) record.
  • To qualify for the new full State Pension, you need 35 qualifying years of National Insurance contributions or credits.

4. Lifetime ISA:

  • Suitable for those aged 18-39, a Lifetime ISA allows you to save up to £4,000 each year, and you receive a 25% bonus from the government on your contributions.
  • Money can be withdrawn tax-free to buy your first home or after age 60.

5. Property:

  • Some people consider investing in property as a way to support their retirement, with the idea of either selling the property or earning rental income during their retirement years.

6. General Savings & Investments:

  • Beyond formal pension schemes, individuals often save and invest in Individual Savings Accounts (ISAs), stocks, bonds, or other assets to diversify their retirement funds.
  • If you do use different saving options, make sure you don’t miss out on high interest rates.

4 Tips for Retirement Savings:

  1. Start Early: Even if the contributions are small, the power of compound interest can result in significant growth over time.
  2. Regularly Review: Assess your pensions and savings regularly. Are they on track to provide the retirement you’re aiming for and cover your bills in retirement?
  3. Maximise Employer Contributions: If your employer matches your pension contributions, try to contribute the maximum amount to benefit fully from this.
  4. Seek Financial Advice: If you’re unsure about the best strategies, consider consulting a financial advisor.

Side Hustles for Retirees to Bolster Income

An airBnB apartment in a city

Where traditional retirement schemes may fall short of providing a comfortable lifestyle, ‘side hustles’ for retirees are becoming more popular.

These are not just methods to supplement income but opportunities to harness lifetime of skills, experience, and passions.

From turning hobbies into businesses, such as crafting, gardening, or photography, to freelancing in areas of expertise or even providing consultancy based on a career’s worth of knowledge – the opportunities are vast.

Retirees can also pick up on online tutoring, blogging, or selling products on e-commerce sites.

As well as helping to increase income, these side hustles can also offer a sense of purpose and engagement and provide the chance for retirees to continue to be socially engaged within the community, providing a sense of purpose too.

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