Over 55s see highest income for four years though expenses rise too

22nd January 2014

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The over-55s’ have attained the highest income in four years but the increase is overshadowed by the need for extra spending with monthly payments on food, housing and energy £53 more than a year ago.

There are some signs of greater confidence as fewer over-55s worry about their living standards new findings from insurer Aviva’s Real Retirement Report shows.

Typical spending by over-55s has risen by 9% in the past year – cancelling out their income gains and leaving them to manage an extra month’s worth of outgoings.

Aviva’s Real Retirement research has assessed the position of the 55-64s pre-retirees, 65-74s retiring and over-75s long-term retired.

Cost of living weighs heavily on over-55s

Over-55s’ monthly income reached £1,545 in January 2014 – the highest figure in the four years since Aviva began tracking this data.

Incomes have typically risen by 7% in the last year (from £1,444 in December 2012), making a difference of £101 each month or £1,212 each year to the typical over-55.

The trend looks to have been fuelled by a significant jump in those aged 55-64 who receive wages and other earned  income (62% vs. 55% in December 2012) and a growing number of over-55s drawing income from employer pensions (39% vs. 36% in December 2012).

It leaves 9% of over-55s receiving less than £500 income each month and 17% to survive on less than £750. Both figures are the lowest since February 2010 when 11% had monthly incomes below £500 and 20% received less than £750.

However, income gains since December 2012 have been outweighed by a 9% increase in over-55s’ typical monthly expenditure over the same period. Their extra outgoings add up to £116 a month or £1,392 a year – equivalent to a whole extra month of spending.

Extra outgoings cancel out rising incomes:

Dec 2012 Jan 2014 Actual change % change
Monthly income £1,444 £1,545 £101 7%
Monthly spending £1,241 £1,357 £116 9%

While all age groups have been affected by rising expenses, 65-74s have managed to limit their extra monthly spending to £38 (up by 3%) compared with December 2012.

In contrast, pre-retirees (aged 55-64) and the long-term retired (over-75s) have each seen their monthly outgoings grow by 13%. The biggest impact has been felt by 55-64s who are spending £165 more each month in January 2014 than a year ago.
65-74s escape the full weight of added expenses:

All 55-64s 65-74s Over-75s
Monthly spending – Jan 2014 £1,357 £1,426 £1,276 £1,216
Monthly spending – Dec 2012 £1,241 £1,261 £1,238 £1,078
Actual change £116 £165 £38 £138
% change 9% 13% 3% 13%

Over-55s make progress on debt repayments

Housing costs including mortgage or rent have increased the most since December 2012 – by £24 a month – while over-55s’ typical monthly food bill has gone up by £23.

With payments on fuel and light costs also rising by 5% in the last twelve months, it means the typical over-55 is putting an extra £53 a month towards the cost of food, housing and energy than they were twelve months ago – equivalent to £636 a year.

However, over-55s are still finding ways to manage their existing debts and have increased their typical monthly debt repayments by £14 (8%) in the last twelve months. This has helped continue the reduction of their unsecured debts, which have fallen by 23% in the last two years from £21,901 in December 2011 to £16,853 in January 2014.

Over-55s’ monthly spending on essential bills and servicing debt

Dec 2012 Jan 2014 Actual change % change
Housing £282 £306 £24 9%
Food £189 £212 £23 12%
Debt repayments £178 £192 £14 8%
Fuel and light £111 £117 £6 5%

Improving economy breeds optimism among over-55s

Despite these pressures, over-55s seem confident about their short-term financial stability in January 2014. Just 21% expect their standard of living to deteriorate in the next three months, down by seven percentage points from 28% in December 2012.

Similarly, fewer over-55s (76%) are worried about the rising cost of living over the next six months than was the case in December 2012 (80%), but along with unexpected expenses (42%) this remains the key concern.

Fears about falling savings returns over the next five years have receded in the last twelve months (dropping by three percentage points to 26% in January 2014) while fewer over-55s are concerned about lower investment returns (15% in January 2014 compared with 18% in December 2012).

Clive Bolton, Aviva’s managing director of At Retirement, said: “Planning for retirement is challenging enough for many people without the added pressure of larger bills for essential costs and the threat of further increases in 2014. While over-55s typically have more income at their disposal than they did a year ago, many are finding they have less freedom to decide what to put their extra money towards, as essential costs rear their heads and push to the front of the queue.

“People may have little power to hold back the tide of rising prices, but with the economy starting to improve they can look to draw on all their existing assets to maximise their income in later life. Despite the challenging environment, there are options that can help over-55s to realise their hope for a comfortable future.”

Methodology: The Real Retirement research series was designed and produced by Aviva and Wriglesworth Research.  The winter 2013 findings involve 1,011 UK consumers aged 55 years and over, with 18,712 in total having contributed to the research since February 2010.

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