29th May 2013
A quarter of over-75s and more than a fifth of over-55s have been compelled to raid their planned inheritance gifts to support their struggling families according to research writes Philip Scott.
Insurer Aviva in its ‘Real Retirement Report’ found just 7% of over-55s rate this as their top financial priority in retirement, and while this predictably increases with age, just 18% say the same by the age of 85.
Today building up an inheritance pot comes in a distant third as a top financial priority for the over-55s. At the top of the financial agenda, at 77%, are meeting day-to-day living costs and providing more immediate support to family, at 17%. The research found that it is only after the age of 65 it becomes a second priority after managing the cost of living, at 69% against 19%, and ahead of family support at 12%.
Clive Bolton, managing director of Aviva’s At Retirement business, says: “It is not just the older generation who have seen their financial realities change, but also younger family members who often need support to access the property ladder or raise children of their own.
“For some over-55s the desire to leave an inheritance plays second fiddle to more urgent financial proprieties, and even those who are financially secure are often tempted to share their wealth during retirement rather than wait to leave an inheritance.”
To up their disposable cash, 18% of over-55s would shop around for cheaper deals such as during their weekly food shop while more than one in ten, at 12%, would downsize or move to a cheaper home and a similar number, at 11%, would work part-time in retirement, while 10% would take fewer holidays abroad.
The over-55s’ monthly spending has remained static since May 2012, falling by just £1 to £1,302 in May 2013 but this hides the budget-stretching impact of living costs which have limited their ability to repay debt says the report. Compared with May 2012, the over-55s are typically spending 8% more on their weekly food shop, some £168 a year, and 11% more on public transport fares and other travel costs, which adds an extra £63 to their annual expenditure.
Rising housing costs have also affected over-55 mortgage holders and private tenants. Monthly housing payments have increased by 6% to £307 since May 2012, equivalent to £194 annually: suggesting the over-55s have felt the impact of rising rents and not benefited from falling mortgage rates.
But the survey found the over-55s are also motivated to safeguard their own standard of living during retirement. Less than one in ten at 8%, would sacrifice home improvements to benefit the younger generation and fewer still, at some 7%, would dine out less or avoid takeaway meals and just 4% would swap a car for a cheaper model.
Despite the attitude shift among those approaching retirement, more than half, at 53%, of over-55s still expect to leave more inheritance than their parents with 37% planning to leave significantly more. However this confidence is highest among the over-75s and falls away among the 55-64s and 65-74s, suggesting the economic situation has undermined people’s financial security on the lead-up to retirement. More than half, at 58%, of 55-64s still receiving a wage or other earned income in May 2013 and 21% of this group expect to leave no inheritance behind at all.
Property assets playing an increasingly more significant role
With savings squeezed, property is becoming a bigger feature of people’s inheritance plans. Nearly two thirds, at 65% of over-55s plan to leave behind the family home but only 34% received this from their parents.
However, up to 16% of over-55s have seen their later life plans impacted by the housing market crash which has left them with less property wealth either to leave as an inheritance or release equity in order to help their finances in retirement.
In addition, 26% of over-55s believe becoming a parent is the best time to begin planning to leave an inheritance but only just 17% take action at this stage, as the costs of raising a family bite. Instead, 23% wait until the final years of work or the first years of retirement before planning their inheritance.
Bolton adds: “Many over-55s who bought their homes much earlier in life have benefited from growing house prices in the decades since and understandably hope their family will share the proceeds as part of their inheritance. Anyone who needs to call on their property wealth at an earlier point – either to support themselves or family members – can aim to downsize or take out inheritance protection with equity release plans to safeguard a fixed amount for their loved ones’ future use.”