Every time you turn on the TV, pick up a newspaper or magazine, or click onto a news site, it seems there is yet more gloomy news about retirement – specifically, the future of pensions and other vehicles to fund the “leisure years”. It’s important to keep up with developments of course, but it’s also important not to get so caught up in the negative news that you overlook the positive.
Bad news for income-producing investments and annuities?
There was a time when the best place for keeping your pension pot was in savings accounts. They were stable, and earned a respectable – if not overwhelming – interest rate, at the very least, high enough to stay on a par with inflation. But that was before the financial crisis of 2008, and the measures that were taken to restore the economy.
As banks grew wary of lending, would-be borrowers found themselves with less money to save. Government responded by drastically reducing the interest rate in an effort to encourage people to begin using available credit again. Faced with dismal returns on their investments, many retirees and soon-to-be-retirees began moving their retirement pots to equity income funds, which had long been paying significant dividends.
Unfortunately, it wasn’t long before companies began bowing to pressures to reduce the dividend payouts in response to the rising cost of the bonds that supported high dividend payments. That high cost is typically referred to as the “black holes” in pension funding. And those “black holes” don’t look to be going away anytime soon. The one ray of hope in this downward earnings spiral for retirees might rest in a recommendation made by Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown – that the Bank of England issue higher-yielding pension bonds for purchase only by annuity providers and pension schemes.
Then there’s the gender gap…
It cannot be denied that women have made significant progress in many areas over the last few decades, but neither can it be asserted that they have achieved full equality with their male counterparts, particularly where woman’s earnings – both while in the labour pool and in retirement – are markedly lower than men’s. For example, in a study of over 9,000 adults, over a thousand of whom plan to retire in the coming year, men expect to earn an average of £19,850 per year, while their female counterparts can expect to earn £14,450. Both figures represent record incomes, but if anything the disparity between the genders’ earnings seems to be increasing, as the gap has widened by £600 just since last year, leaving many of both sexes – and 60% of women – worried that they won’t have enough money for a comfortable retirement.
Given all of the above it would appear that a growing number of pensioners – men and women alike – will be scrambling to make ends meet, with their retirement years being anything but leisurely. That said, the situation isn’t completely bleak for retirees, particularly those who take advantage of resources available to them.
Making the most of your money
Retirement is supposed to be a time to enjoy life more without the obligations of work. However, a reduction in your income can cause financial stress that will derail your retirement plans. A reverse mortgage can help you alleviate your financial woes. It is a loan designed for retirees that can provide you with monthly money to cover essential bills or be used for other purposes of your choosing. If you are interested in a reverse loan, you have to talk to your reverse-loan lender. The lender will use a reverse mortgage calculator to figure out how much money you can borrow from your home equity. The primary requirements of the loan will be that you own and live in the home until the loan is repaid. If you vacate the home at any point it will be sold so the lender can recover at least some of what you owe, unless you or your family members pay what you owe, including accrued interest.
If you’re retired or soon to be retired, and are losing sleep wondering how you are going to make your money last as long as you do, you may have more options than you think. Perhaps you could benefit from restructuring your investment portfolio or rethinking your savings strategies – tasks for which it is best to consult a qualified adviser. Downsizing your home and selling unwanted items may also be feasible. Taking a part-time job to bring in a little extra income may be an option. What’s important is that you weigh the consequences of every money decision you make, no matter how minor it may seem.
We emphasise the word every for good reason, since while many people are trying to optimise the amount of cash they have left over every month after paying their bills and meeting their regular expenses, many if not most tend to completely overlook areas where the savings potential seems insignificant. For too many, those seemingly “insignificant” savings aren’t tapped until the person’s financial state becomes a source of panic. Better that you avail yourself of those savings ahead of time, perhaps even turning them into a boost for your retirement pot.
Yes, you need to take measures to cut your heating bill. You need to research government schemes that are geared toward making your retirement finances less worrisome. You need to shop around and consider replacing or consolidating your high-interest debts with lower-interest ones. Whether you are considering refinancing your mortgage, replacing your old car, paying off your credit cards, or replacing that old furnace, you need to shop around for the best deals, not only for the products you are buying, but for the means by which you’ll pay for them as well.
Providing you with a comprehensive set of resources for cars, furnaces, and anything else you might need to buy is well beyond the scope of a short post such as this, but where financing your chosen activities is concerned, the readies.co.uk website gives you an at-a-glance, side-by-side comparison that lets you know beforehand how much your activities will cost you from a long list of lenders. And the site’s ability to post honest customer reviews will give you an idea what each lender is like to work with and how responsive they are to customer service requests.
It would be misleading to tell you that we have easy times ahead, but if you take control of every aspect of your finances, even the hard times can be made easier. Failing to take control of even the seemingly minor details, on the other hand, brings to mind the old proverb, “For want of a nail, the shoe was lost…”