Older workers are gambling away their financial futures | Personal Finance | Finance

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Older workers can’t rely on the luck of the draw, says expert

Everybody dreams of winning a million or two but this is no way to plan for a secure financial future.

The only reliable method is to pay regular sums into a company or workplace pension, as well as other tax-efficient savings vehicles such as Isas.

SAVINGS STRUGGLE

The over-50s often struggle to save enough for retirement because of the rising cost of living, with inflation standing at 3 per cent, while wages stagnate. Many also have financial responsibilities, dependents to fund and have to prioritise paying off debts such as a mortgage.


Even options that might seem guaranteed could pose a challenge should economic or market conditions change

Lindsey Rix – managing director, savings and retirement at Aviva


The result is that more than two million over-50s workers say they are yet to take pension saving seriously, according to Aviva’s Real Retirement Report, which leaves them playing “retirement roulette”.

Workers expect their earnings to peak at age 51 and stay there for five-and-a-half years, making this a vital window of opportunity to boost pension savings.

Someone who puts away an extra £100 per month during that peak earning period could boost their pension pot at retirement by £25,000.

Lindsey Rix, managing director, savings and retirement at Aviva, says financial pressures are forcing many to postpone retirement planning and put their faith in factors beyond their control, such as downsizing: “Even options that might seem guaranteed, such as making a profit from selling your home and moving somewhere smaller, could pose a challenge should economic or market conditions change.”

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The only reliable way to secure your financial future is to pay regular pension

Somebody selling a detached house worth £310,000 and downsizing to a semi costing £197,000 would release a little more than £100,000 after stamp duty and removal costs, according to figures from Royal London, and a house price crash could quickly shrink that.

Incredibly, one in 10 says that they are relying on hitting the jackpot to fund a comfortable retirement, Aviva says, despite the odds of winning big on the National Lottery being just one in 45 million.

BIG MONEY

Winning the lottery is the ultimate act of faith, but even then there is no guarantee of a secure future as too many mishandle the money.

Plain English Finance founder Andrew Craig says: “Very few people know how to take advantage of such a large windfall, with lottery winners being particularly vulnerable.”

An incredible 70 per cent end up going bankrupt within seven years in the US, according to the National Endowment for Financial Education. Similarly, while Premier League footballers earn more than £ 30,000 a week on average, three out of five declare themselves bankrupt within five years of retirement

PREMIUM INCOME

More than 20 million Britons hold Premium Bonds, which creates two new millionaires every month.

This is a life-changing amount of money, but if you resist the temptation to splash the cash, could you afford to give up work?

Sarah Coles, personal finance analyst at Hargreaves Lansdown, says if you put the money in cash with a long-term return of 2.54 per cent a year and drew the average annual UK income of £27,200, the money would last 30 years. “If you invested in bonds yielding 5.16 per cent it could last 47 years,” she adds.

Coles says if you invested in the stock market, which history suggests offers a long-term return of 6.08 per cent a year, you could have more cash than you originally invested after 60 years: “This is the best option and would give you plenty to pass on to your family.”

For most people, setting aside a little every month is the surer path to a comfortable retirement. 

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