What is Affecting Your Ability to Retire?
It’s not a surprise that this year’s current UK inflation rate of 11.1%, rising interest rates, currency fluctuations, and political turmoil have had an immediate effect on retirees as well as those planning for retirement.
The stock market performance is an enormous worry for people counting on their investments for retirement income and actually taking retirement off the table for many.
Interactive Investor, an investment platform operating under the global investment company of abrdn, has published its annual Great British Retirement Survey for 2022.
The survey explores relationships between financial concerns and mental health; the lack of understanding of pensions and retirement planning; and the relationship between the government’s continual raising of retirement age and the realities of seniors’ health.
The project surveyed more than 10,000 people during May – July 2022. The survey participants – over 5,000 UK adults aged 22 and up – are representative of the UK’s age, gender, education status, region, employment status, and ethnicity. The other half of survey respondents came from the company’s investor community; those findings are reported separately. The survey results cited here are for the representative general population sample.
Lack of Understanding
A good place to start to examine the state of UK retirement is to look at how people plan for it. The survey found that the majority of those under age 66 have no idea what their retirement pension amount will be: 52% of men and 68% of women. Add to this the finding that nearly half of women over 65 are entirely dependent on their state pension as their only source of income. For men in this category, the number is 29 percent.
So, about half of women have no knowledge of what their pension income will be, yet a majority (68%) will be completely dependent on it. For men, a little more than half (52%) have no pension income knowledge, yet 29% will count on it entirely.
While people may not know the exact amount of their future pensions, do they have an understanding of pensions in general? Nearly a quarter of the population (24%) say they don’t know anything about pensions.
When asked to estimate their likely retirement income, their average expectation is 30% more than the amount they are likely to get.
Hope is not reality
When would you like to retire? The age at which people would choose to retire does not reflect today’s reality. For example, the average age people 40 and under say they would like to retire is 59.1. For ages 41 – 55, the average age they want to retire is 62.1.
The actual age of retirees today: Just 28% of people retired at ages 59 or 60 and only 44% of people aged 61 – 64 have actually retired. For those over 65 who continue to work, a full 25% do so because they need the money.
The current economic environment is derailing people’s ability to save for the future and worsening their prospects for retirement. More than half (56%) of the population under 66 have had to curtail saving. Thirty-six percent have cut back, and one in five (20%) have had to temporarily stop saving altogether.
The cutback in savings is happening across income levels; those making £60,000 or more are cutting back on savings nearly as much as those whose income is £30,000 or less (54% versus 58%).
Health affects everything
While the number of years of life expectancy is rising, the number of years of healthy life expectancy is not. The average healthy life expectancy age is 63.1 for men and 63.6 for women. There is a disconnect between these findings and the government’s rising retirement ages. The current State Pension age is 66. Between 2026 and 2028, there is a plan to raise the retirement age to 67. Between 2037 and 2039, the State Pension age is scheduled to increase further, to 68.
Nearly half (49%) of retired survey respondents reported that they have physical or mental health conditions or illnesses lasting or expected to last 12 months or more, and 16% say their health issues affect their ability to carry out daily tasks.
Health coverage is a significant issue: people are paying for private treatment because of long waits for National Health Insurance (NHS) access. However, older people are finding themselves priced out of private treatment. As a result, coverage reduces with age, too – from 21% in the 22-to-40 age group to only 8% for those over 65. Overall, more than one in five (21%) of 56-to-65-year-olds cut their hours because of ill health.
Not being able to afford healthcare ranks fourth among the general population’s principal financial concerns, with 18% listing it among their biggest worries. A majority (65%) of respondents said their mental health is being affected by their financial situation.
Lost earning potential
Many people worldwide left the workforce during the Covid-19 pandemic. In the UK, the number of people aged 56 – 65 who are not earning income has risen 10 percent. This age range represents the years of the highest earning potential for many. So, by not working, the size of their pensions can be greatly affected.
Those who develop a health condition between 56 and 65 have a high chance of having to reduce working hours. More than half (51%) of those with a health condition or illness cut their hours.
It’s not always their own health that limits peoples’ ability to work. Thirteen percent of 56-to-65-year-olds reduced their working hours because they are needed to care for ill or disabled family members – a responsibility that falls disproportionally on women.
Any good news?
Today, even with all the hurdles, 91% of people over 65 have retired. The remaining 9% continue to work, with 30% of them doing so only because they enjoy it, not because of the money.
Early retirement has been possible for some aged 56 – 65. The number one factor (38%) allowing early retirement is the amount they saved throughout their lives. This information is most beneficial for younger people who can increase their savings if and when the current cost-of-living increases subside.
Retirees love not working and filling their time with family, friends, hobbies, and goals of their own, not their employers. They do reinforce that a happy retirement depends on good health, another thing that younger people can choose to prioritize.
The Great British Retirement Survey 2022 covers more retirement concerns than are summarized here, including ethical investing; property investing; pension management; and more.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
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