The disposable income of people in retirement has exceeded that of non-retirees, despite rising costs, the UK’s Office for National Statistics (ONS) has found.
Retirees had more money to play with between 2006 and 2018, as their disposable income rose by 60%.
This compares with a 36% increase for those still working.
Inflation and rising prices saw retirees hit with 2.7% higher costs, which dented their free cash flow; but they are still better off than their working counterparts even though their costs have gone up by slightly less (2.3%).
International Adviser reached out to financial and wealth planners to see what options are available to retirees when it comes to putting that money to good use.
Plan your inheritance
According to Progeny Wealth, IHT planning needs to be high on the priority list.
“We’ve been observing this trend of retired household’s disposable income outgrowing that of non-retirees for some time,” Jason Witcombe, financial planner at Progeny Wealth, told IA.
“It’s also no secret that baby-boomers are preparing to make the greatest inter-generational transfer of wealth in history, and with the adage of not wanting to be the richest person in the grave yard ever present, it’s key that this new income is used appropriately.
“Once they’re comfortable this is covered off, ensure extra cash is passed down as efficiently as possible if inheritance tax planning is an issue.
“Maximise the £3,000 ($3,869, €3,472) annual gift allowance and, depending on age, look into making larger gifts to utilise the seven-year term. They could also consider making regular gifts out of income as an IHT planning strategy,” he added.
Keep saving for the younger generations
However, James Temperley, wealth director at Sanlam UK, believes that saving is in retirees’ nature and should be encouraged and continued.
He told IA: “Retirees are often more prudent and careful than younger generations. They have had the importance of saving drilled into them throughout their lives, which is likely to be at least part of why they find themselves in such a position.
“There is always the option of saving further, but there is also the tendency to want to help younger generations. This could be done by helping to fund pensions of children or grandchildren; for example, a £2,880 pension contribution to a grandchild is immediately uplifted to become £3,600 in their pension.
“Alternatively, they could take advantage of the recently introduced Lifetime ISA to help them save for their deposit on their first home – this allows annual contributions of up to £4,000 get a government bonus of 25% if used to by a first property.”
However, Temperly added that these tax reliefs should not be goals in themselves, but they should be used to achieve a financial status either for the retirees themselves or for their families.
Not great for everyone
But a lot of people are being left behind as their peers enjoys greater financial security.
Pension administrators Equiniti use the ONS data to reveal that nearly one in five (17%) are surviving off UK state benefits alone, the highest proportion since 1995/96.
Chris Connelly, propositions & solutions director, believes improving awareness of retirement savings is the key to increasing the amount of independent income available to those leaving the working world.
“These figures underline how important it is that people continue to learn about the importance of a later life income. It is worrying that one in five UK pensioners seems to be entering retirement with no personal savings or investments leaving them to rely solely on the income the state is able to provide.
“Auto-enrolment has gone a long way to improving behavioural trends in pension saving, however for the cohort closest to retirement it remains a concern that they will not have any funds of their own.”
