More than a third of over-55s are living beyond their means, with the majority having to dip into their savings to plug the income shortfall, research has found.
According to data from equity release lender More2Life, 35 per cent of over-55s said their expenditure exceeds their income, with the majority of these individuals (68 per cent) being forced to use their savings to make up the difference.
A further quarter (25 per cent) stated the increased cost of living would push them into the red this year.
The research, based on a survey commissioned in April 2019, of 1,766 people aged 55-plus, found nearly a fifth (17 per cent) of those whose spending exceeded their income would use their bank overdraft to bridge the income gap, while 16 per cent would choose to borrow using a credit card.
Almost half (48 per cent) said they didn’t have enough cash savings to cover an unexpected bill of £5,000, highlighting a trend towards financial insecurity in later life.
While one in five over-55s would not be able to cover an unexpected £5,000 bill by any means, 14 per cent said they would have to consider taking out a loan to do so.
One in 10 respondents stated a failure to cover day-to-day expenses would encourage them to borrow, while 8 per cent would borrow to help a family member or partner, suggesting this cohort has very little financial cushion if anything unexpected occurs.
When considering the impact of a 10 per cent cut to their monthly income, nearly half (44 per cent) of those surveyed said they would have to cut back their spending, while 12 per cent would need to regularly dip into their savings.
Only a third (32 per cent) of respondents stated their income would be enough to cover a 10 per cent income reduction.
Dave Harris, CEO at More2Life, said: “With an increased number of over-55s dipping into their savings or using unsecured borrowing just to make ends meet, an unexpected bill can play havoc with their finances.
“However, we need to encourage people not only to consider all their assets at retirement but also how they might help if they do find themselves struggling.
“Solutions like equity release are set to help an increasing number of older homeowners boost their income. In the third quarter of 2019 alone, older homeowners unlocked nearly £11m of property wealth per day to help give them a financial uplift in their retirement.”
However, Alistair Cunningham of Wingate Financial Planning, said he views equity release as a last resort.
He said: “To deal with these kinds of scenarios and financial shortfalls, we would advise people build up an emergency fund.
“Some people may also use a lump sum from their pension. For us, equity release is better suited to situations where the client wants to downsize their property, or used very late in life to fund their care.”
To discuss your pension provision with an adviser, please call us on 0191 384 1008.