By Daniel Hunter
Retirement savings have plummeted among those aged 55-64 over the past year as the cost of living continues to rise, according to Aviva's latest Real Retirement Report.
The autumn 2013 report assesses the impact of financial pressures and concerns across the UK's three ages of retirement: the 55-64s (pre-retirees), 65-74s (retiring) and over-75s (long-term retired).
Savings habits among those nearing retirement have tailed off in the last year, leaving 40% of 55-64s - over 2.9 million according to the latest population estimates - finding no room in their monthly budgets to make regular savings. This figure has grown by two percentage points in the last year, while the typical amount saved each month has also dropped 15% from £39 to £33.
The trend sets pre-retirees apart from both older age groups, who have succeeded in increasing their monthly savings habits in the last twelve months. The 65-74s are typically saving £14 more each month (£76) than in September 2012 while the over-75s are saving £8 more (£69).
Pre-retirees have been rendered even more vulnerable by a 22% drop in their average savings pot over the last year to £9,653. The loss of £2,698 in savings per person equates to £19.7bn in total across the whole of the UK. One in five 55-64s - almost 1.5m people - has no savings or investments to fall back on while almost one in three has less than £500 (30%).
The latest findings suggest that over-55s are slowly turning their back on unsecured borrowing: every available form of credit - from credit cards and personal loans to family loans and doorstop lending - has experienced a minimum 5% fall in use since September 2011.
However, those approaching retirement have been less successful than the older age groups at scaling down their outstanding debt, with just £461 wiped off the average balance since December 2012 to leave the average unpaid sum among those with unsecured debt at £21,015.
The average monthly outgoings across all over-55s have reached £1,308 - the highest figure since this report series began almost four years ago. A 14% increase in the monthly expenditure of 55-64s over the last two years to £1,343 (vs. £1,182 - September 2011) helps to explain why they have struggled to protect their savings and make significant inroads on debt repayments.
Although the average monthly income for over-55s in October 2013 is the highest on record since the report series began nearly four years ago, when examining the figures more closely those aged 55-64 have in fact seen their typical income fall by 2% in the last three years.
Larger proportions of people in this age bracket currently earn less than £500 or £750 per month than any other age group - and the findings suggest their financial situation has fallen under increased pressure over the last year.
In September 2012, 11% of pre-retirees received less than £500 per month while 15% took home less than £750. Both figures are significantly higher in October 2013 at 14% and 22% respectively.
Changes to the benefits system mean that just 15% of over-55s receive an income from this source, compared to 19% in December 2012. The number of over-55s receiving income from savings has also fallen from 29% in September 2012 to 23% (September 2013).
Clive Bolton, managing director of Aviva's At Retirement business, comments: "As everyday living costs continue to rise it is vital that you make sufficient financial preparations for the future, as any unexpected expenses that come your way could have a serious impact on your finances if you don't have savings to dip into.
"It is therefore particularly alarming to see the slump in savings habits among those who are nearing retirement. Putting away even a small amount each month can make a real difference if you start early enough. Giving yourself some room to manoeuvre in the approach to retirement can prove invaluable, as it allows you the financial freedom to fund an enjoyable retirement regardless of any sudden expenses.
"However, when considering the falling returns on savings accounts it is encouraging to see that on the whole the number of people turning to unsecured borrowing is on the decline. Keeping your debt levels in check can reduce the need for corrective action further down the line, which is especially important when income pressures are leaving people with less room to breathe."
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