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
Saturday 10 August 2013
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.
Scam alert: make a big noise to beat the crooks
Bargain Hunter: Eurostar offers child fares for £1 each way to Paris, Brussels and Lille
Simon Read: 'BT Sport wants us to be couch potatoes on charges'
10 tips for taking out a personal loan
Bargain Hunter: Take your children on Eurostar on a £1 ticket
- 1 David Cameron refers to 83-year-old Labour MP Dennis Skinner as 'Jurassic Park'
- 2 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
- 3 Optical illusion turns blue demon into brunette
- 4 German ethics council calls for incest between siblings to be legalised by Government
- 5 Saudi Prince Alwaleed bin Talal will donate entire $32bn fortune to charity
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
They are neither a 'state' nor 'Islamic': Why we shouldn't call them Isis, Isil or IS
Tunisia beach attack: How can British Muslims respond to the latest outrages?
iJobs Money & Business
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...
Day In a Page
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.