Over-55s increasingly concerned about the rising cost of living

Aviva's quarterly Real Retirement Report shows there has been a significant increase in over-55s' fears about the rising cost of living. Three quarters (74%) said that this was their biggest fear over the next six months and 70% over the next five years. The research shows that this age group is concerned about the austerity measures outlined in the Autumn Comprehensive Spending Review and the imminent increases in VAT.

All the following findings are revealed in today's quarterly report from Aviva which reviews the finances of the three ages of retirement - pre-retirees (55-64); retiring (65-74) and long-term retired (75 and over). This report also takes a detailed look at the increasing tendency for over-55s to down-shift careers. This is outlined in a separate news release.

Finances being squeezed

Whilst the over-55s' biggest fear is the rising cost of living (74%), over the next six months, they are also concerned about the falling return on savings (35%), unexpected expenses (36%) and an increase in taxes (26%). The financial concerns of this age group centre on the fear that their already squeezed incomes will fall further and they will be forced to pay for additional expenses out of this money.

The significant increase in the number of over-55s fearing the rising cost of living over the next five years (up 52 percentage points from May 2010 to 70%) really underlines how the fallout from the recent economic turmoil and the Government's move away from a welfare state has impacted on this age group's hopes and fears. It also reflects the growing fear that high levels of inflation will continue to erode the over-55s' purchasing power.

Housing is largest expense:

Housing (mortgage or rent) now makes up the largest share of the over-55s' monthly outgoings, accounting for 18% of total expenditure (compared to 14% in September 2010). This is likely to be due to a variety of reasons, from landlords increasing rents, to people choosing to pay down their mortgage in the current low interest environment.

While spending on housing increased from last quarter, spending on food fell to 16% of total outgoings. There was some indication that people were economising in other areas in order to repay their debts. Indeed, there was an increase in the level of debt repayment as a share of monthly spending, up to 11% in December 2010 from 7% in September 2010.  However, while over-55s have chosen to economise on food over the past quarter, this figure may increase in January 2011 when the planned VAT increase hits some foodstuffs.

Clive Bolton, ‘at retirement' director at Aviva, said: "Over the last six months, we have seen a significant increase in the number of over-55s who are worried about the rising cost of living. Inflationary pressures have become stronger over this period, whilst interest rates have remained at historically low levels.  The Government's Emergency Budget and Autumn Comprehensive Spending Review have also left this age group feeling nervous that they will receive less support from the State. However, we have seen the over-55s make steps to adjust their spending accordingly, which is encouraging.

"At Aviva, we are also doing our best to ensure that individuals have the right retirement solutions available to them so they are able to relax and enjoy their later years, safe in the knowledge that their finances are working hard for them. This is why we have developed a range of savings and investment solutions, as well as financial planning tools, to help people plan a retirement that suits their own personal needs."