Avoiding a financial mess in old age

As one in four over-50s fear losing their home, Chiara Cavaglieri shows how to plan successfully for a worry-free future

A generation of "tomorrow's pensioners" are plagued by money worries, with one in four people in their fifties afraid that they will lose their home because they are falling behind on payments.

The research from charity Age UK makes for sober reading and the very best financial plans do start as early as possible, but it's never too late to make a difference – if you've reached middle age and your savings have fallen short, there is still time to put a solid strategy in place.

Always start with the basics: paying off your debts and reducing bills. Cutting any outstanding liabilities is a priority and you should pay down the most expensive debt first, which is usually on credit cards. If you have a decent credit score (check free at Noddle.co.uk), try to move loan balances to a 0 per cent credit card. Right now, interest-free balances transfer periods are at an all-time high with the Barclaycard Platinum card offering 27 months interest free on transfers.

"Know your interest rates – sounds easy, but if you ask people in the street the interest rate on their mortgage or credit cards, most would give you a blank look," says Steve Rees from debt consultant Vincent Bond & Co. "Clearing the most expensive debt first does not mean ignoring payments on other loans as you need to pay the minimum to keep your credit score intact, but try to work out the best way of maintaining your other debt repayments while putting a little extra towards the one that is costing you the most."

You also need to keep a roof over your head, so clearing the mortgage before you retire is the ultimate aim. Consider downsizing to release cash, although remember that the costs of buying a new home don't stop with the asking price – solicitors, estate agents and stamp duty can make this an expensive prospect.

If you are struggling to keep on top of things, organisations such as Money Advice Service and Citizens' Advice Bureau offer free advice and can point you in the right direction for claiming any relevant benefits.

You should also take advantage of all tax relief and employer contributions available. This typically boils down to individual savings accounts (ISAs) and pensions. You can put the entire annual ISA allowance (currently £11,520) into stocks and shares, but only £5,760 can be in cash. Your money grows tax free and you're free to dip in and out of it as you please. Pensions are far less flexible as you can't touch the pot and only 25 per cent can be taken as a tax-free lump sum at age 55. However, you benefit from initial tax relief on contributions and if your employer is matching those contributions, they have far greater growth potential, even very late in the day.

"A 50-year-old earning £30,000 a year, who chooses to contribute 4 per cent of their salary (£100 a month), which is then matched by their employer, could still build up a pension pot of around £49,500 by the age of 66, which could then pay an income of around £2,250 a year," says Hargreaves Lansdown's Tom McPhail.

There are also ways to boost your state pension. For example, National Insurance credits can help you maintain your record for any weeks when you have been claiming benefits such as carer's allowance, jobseeker's, or incapacity benefit. You can make an additional payment to replace missed years, and if you're a low earner you can top up your payments with pension credit. If you're happy to defer taking the state pension, you will eventually get more money – it increases by 1 per cent for every five weeks you put off claiming, or 10.4 per cent for every full year you put off claiming.

Keeping a steady income until you're ready to retire is clearly important. This is easier said than done if you find yourself locked out of the job market, but the default retirement age (formerly 65) has been phased out and anyone who wants to carry on working can't be discriminated against.

"With the state pension age rising to 67 by 2028, it's more important than ever that the Government, employers and recruiters ensure that people looking for work are judged on their skills, expertise and what they can bring to a job, not just their birthdate," says Michelle Mitchell, Age UK's Charity Director General.

If you are working, you should also take steps to protect that income. Ideally, you should have a safety net covering your outgoings for three to six months in case you are out of work due to illness or an accident. Products such as income protection and critical illness cover are well worth looking into, as they provide tax-free cash until you're back at work, or reach retirement. With income protection you should look for a policy that covers you if you are unable to work at your own occupation; that is to say, the one you're trained for, not "any job". If you buy critical illness cover on top, check the list of conditions covered as all policies impose various restrictions and exclusions.

If you think you will inherit money from your parents or another family member, plan now to mitigate inheritance tax liability. You should also review your will every couple of years and update it if your circumstances should change.

Keep a close eye on all of your existing pensions and investments to calculate how near or far you are to your ideal retirement goal. Seek independent financial advice to determine the best way to achieve this.

Over a 10-year period you can afford to take some investment risks, but you should reduce your exposure to equities gradually over time, and in the final few years put the bulk of your money into cash.

At the point of retirement, consider your options carefully. If you're taking out an annuity never automatically get it from your pension provider as you can improve your rate by 20 per cent if you shop around, particularly if you qualify for an enhanced or impaired life annuity.

Remember that some decisions can't be undone, including buying an annuity, so don't rush your decisions and take advice.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Club legend Paul Scholes is scared United could disappear into 'the wilderness'
A model of a Neanderthal man on display at the National Museum of Prehistory in Dordogne, France
Dawkins: 'There’s a very interesting reason why a prince could not turn into a frog – it's statistically too improbable'
newsThat's Richard Dawkins on babies with Down Syndrome
Malky Mackay salutes the Cardiff fans after the 3-1 defeat at Liverpool on Sunday
footballFormer Cardiff boss accused of sending homophobic, racist and messages
Rodgers showered praise on Balotelli last week, which led to speculation he could sign the AC Milan front man
Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
Arts and Entertainment
Arctic Monkeys headline this year's Reading and Leeds festivals, but there's a whole host of other bands to check out too
music(who aren't Arctic Monkeys)
Lizards, such as Iguanas (pictured), have a unique pattern of tissue growth
Anna Nicole Smith died of an accidental overdose in 2007
Life and Style
food + drink
Arts and Entertainment
'The Great British Bake Off' showcases food at its most sumptuous
tvReview: Bread-making skills of the Bake Off hopefuls put to the test
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Test Lead (C#, Java, HTML, SQL) Kingston Finance

    £40000 - £55000 per annum: Harrington Starr: A Global Financial Service Organi...

    Access/Teradata Developer, Banking, Bristol £400pd

    £375 - £400 per day: Orgtel: Access / Teradata Developer - Banking - Bristol -...

    Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

    £45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

    Application Support Engineer (C++, .NET, VB, Perl, Bash, SQL)

    Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...

    Day In a Page

    Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

    We know all too much about the cruelty of Isis – but all too little about who they are

    Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
    Neanderthals lived alongside humans for centuries, latest study shows

    Final resting place of our Neanderthal neighbours revealed

    Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
    Scottish independence: The new Scots who hold fate of the UK in their hands

    The new Scots who hold fate of the UK in their hands

    Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
    Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

    Blight club: Britain's ugliest buildings

    Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
    eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

    eBay's enduring appeal

    The online auction site is still the UK's most popular e-commerce site
    Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

    'Lack of ethnic minority and black faces on TV is weird'

    Culture Minister Ed Vaizey calls for immediate action to address the problem
    Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

    Magic circles: Artist Olafur Eliasson

    Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
    Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

    Josephine Dickinson: 'How I discovered a new world of sound'

    After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
    Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

    Greggs gives lesson in crisis management

    After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
    Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

    Matthew McConaughey sings the praises of bumbags

    Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
    7 best quadcopters and drones

    Flying fun: 7 best quadcopters and drones

    From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    Joey Barton: ‘I’ve been guilty of getting a bit irate’

    The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
    Andy Murray: I quit while I’m ahead too often

    Andy Murray: I quit while I’m ahead too often

    British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
    Ferguson: In the heartlands of America, a descent into madness

    A descent into madness in America's heartlands

    David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
    BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

    BBC faces corruption allegation over its Sir Cliff police raid coverage

    Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home