Unexpected expenses are forcing over 55s to dip into savings that would otherwise have been used for retirement income, according to Aviva's quarterly Real Retirement Report.
With nine out of ten (92 per cent) over 55s having faced unexpected expenses in the last five years, it is clear that while people focus on saving to maintain their lifestyle in retirement, ‘rainy day' cash is also very important, says Aviva.
All the following findings are revealed in Aviva's quarterly report, which reviews the finances of the three ages of retirement - pre-retirees (55-64); retiring (65-74) and long-term retired (75 and over).
Over the next five years, people over 55 fear the rising cost of living more than anything else (64 per cent). This is a significant increase from the last report (18 per cent in May 2010) and underlines how the fallout from the recent economic turmoil and the current environment of Government cost savings have impacted on this age group's hopes and fears.
The report shows that despite the large number of over 55s having had to pay out for unexpected expenses, over half (55 per cent) have not made any provision for these unplanned outlays. Indeed, only 6 per cent have made any provision for long-term care, nine per cent for private medical care and 23 per cent for the upkeep of their homes.
Over 55s funded their unexpected expenses by dipping into emergency savings funds (45 per cent) and by using income-generating savings (25 per cent). In addition, 17 per cent cut back in other areas, 11 per cent took out a credit card or loan and 6 per cent sold assets.
The long-term retired - who have been economically inactive for an average of 12 years - were most likely to dip into their income-generating savings (27 per cent) and least likely to use emergency savings (38 per cent).
This might suggest some over 75s have used up their ‘rainy day' savings in early retirement, and are now forced to sacrifice potential future income to pay for immediate expenses.
While the average pensioner saw their monthly income remain steady at £1,313, there are extremes of rich and poor.
While the majority (59 per cent) of households have a monthly income of between £751 and £2,500 per month, the UK is also home to some relatively well-off over 55s (21 per cent on more than £2,501) and other over 55s who are struggling (21 per cent on less than £750).
The largest single source of income (24 per cent) for the over 55 age group is the state pension. The pre-retirees (55-64) are also significantly more reliant on benefits (10 per cent) than the older age groups (4 per cent and 7 per cent) - indicating higher levels of involuntary unemployment and redundancy.
The number of people reliant on income from rental property (September 2010 - one per cent) has fallen over the last quarter (May 2010 - two per cent) - potentially as a result of the current speculation around Capital Gains Tax and its implications for residential property.
However, with 66 per cent of people of all ages saying that they believe that property is a better investment for the future than a pension, we may see a growing reliance on this income source over the next few years.
"When you consider that for a savings pot of £16,296, you would get an annual gross income of just £117 from the standard branch based notice account, you can understand why many over 55s are very worried about their finances,” said said Clive Bolton, ‘at retirement' director for Aviva.
“In fact these figures reveal that one in five over 55 households is struggling to get by on almost a third of the national average income.
"Retirement income is also relatively fixed which is why any rise in the cost of living is particularly concerning for this age group. This coupled with the fact that people often have to pay for unexpected expenses for which they have made no provision highlights how vitally important it is to build up retirement savings over your entire life.
by receiving our MoneyMaker newsletter. You could save hundreds each year. http://www.everyinvestor.co.uk/register-stage-
