How to avoid pensioner poverty
The breadline, AKA pensioner poverty is a very real prospect for many at retirement. Most people born post-1970 are facing very different retirement prospects from those of their parents and grandparents. Back then, a job was for life and final salary pension schemes were commonplace. If you worked for a company for 30 years or more, you were sorted.
Those were the good old days but times are very different today. It’s every man for himself. What’s in store for you?
What is pensioner poverty?
Many of us are heading for the breadline in retirement unless we have a plan. It’s one thing being poor, but being old and poor is quite another.
Pensioner poverty can be summarised simply. It describes those:
- Without extra income from work or private pension
- Forced to continue working, just to make ends meet
Pensioner poverty is a real issue in the UK. As a result and many organisations are looking at ways to focus on tackling and ending pension poverty.
How does pensioner poverty happen?
Pensioner poverty affects a broad spectrum of elderly individuals and households. It touches those who did not save enough during their working years, including low-income workers, part-time employees, and individuals with interrupted careers, such as caregivers.
Additionally, retirees with fixed pensions that haven’t kept pace with inflation can also be vulnerable. Even middle-class retirees may face pensioner poverty if unforeseen ill-health related expenses or housing costs spiral out of control. This section uncovers the diverse faces of pensioner poverty and its far-reaching implications.
If you are concerned you may fall into pensioner poverty, here are five ways to avoid this.
1: Assess your current situation
How much would you need to live on in retirement and are you on target to achieve this? Any good plan starts with knowing exactly where you are as a starting point.
- Where exactly are you now?
- Do you have any current pension arrangements, or nothing at all?
- Do you have any old pensions with previous companies?
- Do you have a personal pension? How is it invested?
- What is it likely to produce if maintained at its current level?
A good pension advice specialist will be able to assess your current position, help project where you are heading, and help you put a plan in place to achieve your target.
2: Determine what you want
Now that you know where you are and where you are heading, determine whether that is what you want. Are your current arrangements adequate? If not, your adviser should be able to help you determine the shortfall between where you are now and where you want to be.
Your adviser could convert that shortfall into monetary terms and give you an idea of what sort of capital you would need to build between now and your chosen retirement age to be financially secure in retirement.
If you are unclear on what you want or how to get there, consider reaching out to a local retirement planning adviser to see how they ca help.
3: Consider your options
Let us assume that your financial adviser has determined that you have a pension shortfall of a certain amount. Let’s say you are 40 and that shortfall is £200,000. Your adviser could help you find ways of making up that shortfall. I like to break it down into how much you would need to save on a monthly basis to build a fund large enough to support you in your later years.
There are many ways to save for retirement these days, including self-invested (SIPPs) and personal pensions, ISAs, and other tax efficient investments.
Building a property portfolio is also an option. Factor in your current budget, assess what is affordable and think about how much time you have to achieve your target.
- Lump sum vs regular pension contributions; which is better?
- How much should you pay into your pension?
- Should you invest in a pension or an ISA?
In the last two parts of this article, we focus on planning and taking action to avoid pension poverty.
4: Have a plan
Once you have decided what option works best for you, start putting together your plan. Determine how much it would cost you on a monthly basis, or whether you would need to find a lump sum of capital to fund your strategy.
Think of all the pros and cons of your plan and assess the risk involved. Again, your financial adviser should be able to help you devise a plan and consider the risks.
5: Do it now and avoid pensioner poverty
It’s amazing how many people come up with amazing plans on paper and then do nothing with them. One of the most common statements I hear from people on the countdown to retirement is “If only I had done this years ago!”
Your strategy is useless without implementing it. Get started and avoid the breadline. The clock is ticking.
Five ways to avoid pensioner poverty – summary
We hope that by reading this article you have some of tools to help you avoid pensioner poverty. To summarise some of the best ways to avoid pensioner poverty are to:
- Assess your current situation
- Determine what you want
- Consider and review your options
- Get planning
- Act fast
For more tips and insights, why not read a few more of our pension articles?