Older baby boomers aged 66-71 averaged retirement income of £25,323, dropping 40% from average final salaries, finds Dunstan Thomas study

2 October 2017

Semi-retirement trend rising, with 19% of 66-71-year olds now in paid work, finds new Dunstan Thomas-commissioned nationwide consumer study

One in five (19%) 66-71-year olds in the UK are still working full- or part-time today to supplement their retirement incomes. Of this group, 8% are still in paid full-time jobs requiring 30 or more hours per week, while 11% are doing part-time paid jobs of up to 29 hours per week.

Of those aged 54-71 years but not yet retired in the new study, over half (56%) already are or predict working full- or part-time to supplement their retirement income beyond State Pension Age which currently stands at 65 years for men and 64 for women. For this same pre-retirement group who are working, or plan to work, beyond the SPA, the average length of their predicted semi-retirement was four years and two months. A third of men (32%) and 17% of women predicted they would be in semi-retirement for up to five years. One in every seven men (14%) and nearly as many women (12%) predicted they would never stop paid work ever!

Baby Boomer retirement income averages £23,376 - 40% less than average final salaries

Baby Boomers’ overall pre-tax income in retirement from state and personal pensions and other investment sources is an average of £23,376, across the 54-71-year old age group captured by the study. Older baby boomers aged 66-71 averaged retirement income of a healthy £25,323; while 60-65 years olds predicted an average of £24,089; and 54-59-year olds, presumably those most affected by the decline in Defined Benefit (DB) final salary pension penetration, predicted total average retirement incomes of just £20,486 per annum.

By way of comparison, the Prudential recently unveiled retirement income averages from personal and state pensions sources only, for those known to be retiring in 2017, at £18,100. 2017’s average salaries of people that have worked for more than 20-years are now £38,719 (Source: PayScale) so retirement income predictions indicate an average fall in income in retirement of £15,343 per year or 40%. Based on these numbers, the 54-59-year olds in this study anticipate nearly halving their income when they retire.

Cars, home improvement & eating out budgets are hardest hit in retirement

49% of Baby Boomers plan to slash household car budgets once they retire. 42% will reduce home improvement spend. 38% will reduce eating out, while 27% will even aim to cut holiday budgets. Groceries will be targeted for reduction by 27% while, more worryingly given rising issues in retirement, healthcare budgets are set for the axe by 18%. The winners in terms of increased spend are holidays – 25% said they would increase holiday/travelling budgets, while 13%, perhaps more sensibly, saw healthcare costs rising.

Financial support for other family members changes little once Boomers retire

Nearly half (43%) of Baby Boomers think that, when in retirement, they will be spending the same amount on supporting family members as they do whilst still working and 5% think they will be financially supporting family members even more once retired. A small percentage (4%) of 66-71-year old Boomers think they will be still supporting their children in retirement for up to five years, a further 3% think they will be supporting them for up to 10 years after they’ve retired. Just 1% of older Boomers expect to be supporting their parents for under a year once retired. Although 2% expect to be providing for relations other than parents, children or parents-in-law, for up to five years. A further 2% predict they will be looking after other relations for six to 10 years into retirement.

Family care burden looks significant for a minority of retiring Baby Boomers

6% of Baby Boomers are providing of 1-5 hours of free care to a family member such as a parent or grandchild each week. A further 6% are providing 6-10 hours each week, while 3% are providing more than 30-hours of care to a family member each week. Average number of hours of care provided to a family member is three hours per week. Over a third (35%) of the sample of 54-71-year olds, who care for a family member, predicted an increase in the family care burden being carried by them personally once they are retired. Interestingly, where this support is provided in nearly half the instances (44%) it enables another family member to take on more paid work.

Adrian Boulding, Director of Retirement Strategy, Dunstan Thomas commented on this finding:
“Defined Benefit pension-fuelled Baby Boomers may look better off in retirement than younger generations. But it’s important to acknowledge that Baby Boomers are also the ‘sandwich generation’ - caught between assisting very elderly relations and still supporting and often housing their kids and in some cases providing ‘free’ childcare to grandchildren. The old two-thirds of final salary calculation was predicated on the notion that retirees would not have any other dependents to look after, which is definitely not the case for over a third of Baby Boomers today.”

Third of Baby Boomers plan to downsize, 1 in 7 to release home equity to supplement retirement income

The Dunstan Thomas Baby Boomer Retirement Planning Study also found that nearly a third (29%) of all 1,002 54-71-year olds questioned, were likely to or had already downsized their home to supplement their retirement income; while 14% were likely to or had already released equity from their home.

Drilling deeper into these numbers, the survey uncovered that 11% of 66-71-year olds had already moved to smaller homes to release equity, and nearly as many (9%) 60-65-year olds had done the same. While for the youngest tranche of Baby Boomers - aged 54-59 years - 11% said they were very likely to downsize to unlock funds but understandably only 3% of them had completed this move. Of those that are likely to downsize or release equity from their home, 42% of them expected to complete this work within five years of retirement, while one in five (19%) expect to complete it within 10 years of retirement.

When asked specifically why they plan to downsize - most are simply reducing their costs: 37% are planning to move into a smaller place because it will be ‘less costly to run’; while 13% are looking to reduce their mortgage and other debts. More positively, 14% plan to use it to support more holidays, while 7% are passing released funds onto children and grandchildren to help them out.

Another trigger for downsizing is funding long-term care (LTC) bills: 14% think that LTC bills may force them to move to a smaller place; while 4% have sold (or think that it may force them to sell) their home outright and rent. 4% have/may fund LTC via investment properties, 5% through equity release, 6% through inheritance, 2% will rely on children or grandchildren to keep paying these bills. Just 2% have or plan to have a private long-term care plan of some sort and only 9% of Baby Boomers claim to have made savings provisions for LTC thus far. More than half (54%) haven’t thought about it and/or will rely entirely on the NHS for healthcare support in later life.

Adrian Boulding commented on the downsizing trend:
“This downsizing to part-fund retirement trend is set to increase. It’s a trend that has already been spotted by some housebuilders who are building smaller homes. Of course, the trend also means that millennials looking to get on the housing ladder are likely to be competing with retirees (generally with no mortgages) to buy these smaller houses. This could lead to an imbalance in the housing market as larger properties begin losing value (but from a high base), while smaller ones continue to increase beyond the reach of even more first-time buyers.”

20% turn to regulated adviser for retirement planning, nearly as many to use guidance services

In the meantime, nearly half (47%) have done nothing or plan to do nothing at all to gain more knowledge about pensions pre-retirement and only 20% of Baby Boomers have sought, or plan to seek, face to face regulated financial advice. Perhaps more encouragingly for the Government, nearly as many- 17% - have sought or will seek financial guidance from the likes of Money Advice Service, The Pensions Advisory Service or Pension Wise. A quarter are still relying on reading the financial pages of the nationals for guidance in this area.

The really positive news is that those taking regulated financial advice stand to have total pre-tax household retirement income which is 39% higher than those who have made all their retirement income provisioning decisions alone. So, if you go to a regulated financial adviser you can hope for, on average £33,577.45 total retirement household income. But if you don’t, you take a hit of £13,204.05 to reduce retirement household income to £20,373.40 – what better endorsement for financial advice can there possibly be?!

29% of Boomers still don’t understand Pension Freedoms choices

When asked how soon before retirement they would consider reviewing their pension-held investment/assets to reflect DC pension decumulation choices (listed as encashment, purchasing an annuity or some form of income drawdown), nearly a third (29%) of Baby Boomers simply didn’t understand the options that are now open to them from age 55 under new Pension Freedoms rules.

Adrian Boulding added:
“The lack of understanding of the rules exposes Baby Boomers to serious risks where they don’t understand the consequences of decisions they take. For example, moving to part-time employment and drawing down some pension sounds great, but using that flexible access reduces their maximum allowance to make further pension contributions to just £4000 per year!”

Half of Baby Boomers benefitting from DB pensions

One of the fault lines in terms of retirement savings provision amongst Baby Boomers is whether they have access to a Defined Benefit (DB) /final salary pensions. Median values of Defined Contribution (DC) pensions are worth between 8 and 24% of their peers saving into DB pensions. 85% of people working in the public sector still have access to DB pensions. Nearly half (48%) of Dunstan Thomas’ sample of Baby Boomers have DB pensions. Nearly a quarter (23%) have a DC personal pension, 15% have a workplace DC scheme and 15% are dependent on the state pension alone for retirement saving.

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