Becoming financially secure in later life

Retirement has long been framed as a reward for years of work and saving. A time to rest, do things you haven't had time for, or simply to consider what’s next.

But while many can still look forward to it, for a growing number of people the thought of retirement generates quite different feelings.

Where ideally there would be excitement or at least optimism about what lies ahead, the financial challenges of retirement can also provoke feelings of fear, worry, and anxiety.

As we live for longer, retirement accounts for a much bigger slice of our lifespan than it used to. This presents opportunities, but it also creates practical, financial, mental, and emotional challenges.

So, what does financial security in later life really mean, how does it impact us, and what can we do to improve it?

What is financial security in retirement?

Being financially secure in retirement is generally seen as being able to cover your outgoings and emergencies and having enough savings to last for the rest of your life. In a nutshell, it can be seen as not having to worry about money.

How it really feels and what it means will vary, however.

For some, it’s about having the means to cover life essentials such as bills and foods. For others, it could come from maintaining a certain standard of living or being able to enjoy things they didn’t have time for while working.

Whatever it is, financial security is invaluable. It’s also a precious commodity, with more people feeling financially insecure in later life.

It’s not just about money. Financial insecurity is about worry, fear, anxiety, shame, and other feelings that can contribute to distress and poor mental health.

More than two million UK retirees have an income less than 60% of the national average, according to a 2023 report by the Centre for Ageing Better^[1].

It found that more than a million pensioners have no savings, and that 4.6 million people aged 50 or over are still paying off mortgages. On top of that, a record number of people in that age group live in private rented accommodation and face rental payments that are likely to rise over time.

Why are more older people feeling financially insecure?

There are several reasons. Some are related to long-term trends, such as the rise in life expectancy that means we need our savings to last for longer. Another side effect of living for longer is that more people are approaching or entering retirement with elderly parents as well as adult children needing their financial support.

Another factor is the government reforms that made it easier for people to access their pension savings from age 55. This has created both opportunities – for more control and investment growth – and complexities.

It means fewer people are using their pension to buy an annuity (which provides a guaranteed retirement income), and more are staying invested well into retirement. The risk is that a growing number of people will have emptied their pension savings prematurely.

Then there are the more immediate pressures. Inflation often has a disproportionate impact on retired people, especially when it's driven by the rising cost of essentials (such as energy and food) that typically account for a bigger slice of spending in later life.

Similarly, people are increasingly going into retirement with mortgages still to repay. This trend will strengthen over the coming years, given the rise in the average age of the first-time buyer.

Why are we more vulnerable to financial problems when we're older?

Certain aspects of later life increase our vulnerability. For example, dementia, declining memory, and cognitive impairment can limit our ability to make decisions and cope with different situations.

Life events are also a driver of vulnerability, such as the illnesses and bereavements that become more commonplace as we get older, as well as retirement itself. Our job can often be the source of our connection and identity as well as our income, so its absence can leave a big gap.

There’s also evidence that a lack of financial security in retirement reduces social connectedness. Those who can’t afford to engage regularly in social activities are likely to feel lonelier, and in turn suffer the health effects of loneliness^[2].

These factors add up to later life being a time when we’re more likely to fall into the category of ‘vulnerable customer’.

These days there can be an additional challenge in the form of technology too. As more banks close branches and require customers to bank online, for example, those unable or unwilling to use digital channels are at a disadvantage, and often excluded or left with more expensive deals.

What should I do if I'm worried about my finances?

Some of the issues we’ve mentioned are hard to avoid, but there are ways to mitigate their impact.

For example, if you know you’re struggling to understand certain financial matters or make decisions, ask for help.

This would ideally be from a professional financial adviser, who can give you peace of mind by putting a plan in place and guiding you through the various decisions you face.

If possible, speak to family members and/or friends before making big decisions, especially if you don’t feel confident in dealing with your finances. This is particularly important when those decisions have a direct impact on them.

This will include things like power of attorney, taking out an equity release mortgage, thinking about inheritance plans, and generally putting your house in order to make it easier for those left behind.

Above all, face up to any issues that arise. Whenever we feel afraid or worried, it’s tempting to enter head-in-the-sand mode and just hope everything will be okay. But avoiding things only tends to make matters worse. Seeking support or guidance is a big part of being financially resilient.

How can I make myself more financially secure in later life?

The steps most relevant to you will depend largely on whether you’re approaching, entering, or already in retirement.

Before retirement

There are several ways to boost your pension savings. They include taking advantage of any workplace pensions available to you – especially if your employer tops up your own contributions – and using your annual Individual Savings Account (ISA) allowance. If you’re able to, overpaying your mortgage can reduce the chances of taking those repayments into retirement.

At retirement

With some crucial decisions to make as you approach and reach retirement, advice is essential. Also get a sense of how much you’ve saved by asking each pension provider for an up-to-date statement showing how much your pension is worth. Also think about any old or lost pension pots you might have opened but have lost track of. Go to the government’s Pension Tracing Service(www.gov.uk opens in a new tab) to find out if you have a pension open in your name that you’re not aware of.

After retirement

The focus now shifts largely to making your savings last, especially if you entered a drawdown arrangement (where some or all of the pension remains invested and you take income from it over time). Keep an eye on the amount you take out, especially in the event of a market downturn, and don’t underestimate how long you might live for. It’s better to have some pension left over at the end of your life than run out of money before that point. Again, a financial adviser can help you navigate this tricky path.

What other help is out there?

If you’re unwilling or unable to pay for financial advice, the government-backed MoneyHelper provides free, impartial guidance. Its services include Pension Wise(www.moneyhelper.org.uk opens in a new tab), which offers free appointments to anyone aged 50 or over with a defined contribution pension pot and who wants help exploring their pension options.

Firms including energy suppliers and financial services providers are obliged to provide support for vulnerable customers. So, if you’re struggling with cognitive decline, mental or physical ill health, financial problems, or other issues, don’t hesitate to ask what help they can offer.

There’s also plenty of free, informed, and impartial information online, including our simple guide to retirement and article on what to do if you’re retired and in debt.

How can I manage the impact of retirement on my wellbeing?

The same applies when it comes to stress, loneliness, low mood, distress, and other mental health-related issues: seek support.

Age UK(www.ageuk.org.uk opens in a new tab) provides a range of services to help with health and wellbeing, while organisations including Mind(www.mind.org.uk opens in a new tab), The Silver Line(www.thesilverline.org.uk opens in a new tab) (0800 4 70 80 90), and Samaritans(www.samaritans.org opens in a new tab) (116 123) all offer free helplines for anyone seeking mental and emotional support.

Social support is particularly important in retirement, whether through family, friends, former colleagues, volunteering, clubs and classes, befriending, or other outlets for social interaction.

Retirement should always be something to look forward to. Financial security goes a long way to being able to enjoy later life, and its absence can cause a lot of stress and worry.

Money is an emotional subject – it’s never just about pounds and pence. So it’s important to pay attention to the relationship between our financial situation and our general wellbeing, and to look after both.

Sources

^[1] ageing-better.org.uk/news/50-years-progress-against-pensioner-poverty-under-threat-state-ageing(website opens in a new tab)
^[2] bmcgeriatr.biomedcentral.com/articles/10.1186/s12877-019-1281-1(website opens in a new tab)

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