Last year, you may have read Why you could be hit twice by the cost of living crisis, in which we looked at the plight of so-called “midlifers”.
If you’re in your 40s or 50s, you might find yourself looking after financially dependent children at the same time as part-funding care costs for your elderly parents. This peak financial responsibility has been particularly hard to manage as inflation has soared, carrying living costs with it.
Now, a new survey, published by Actuarial Post, has found that those aged 50 to 59 are most at risk from the cost of living crisis, and it could already be affecting your retirement prospects.
Keep reading to find out why, and, more importantly, what you can do about it.
50-somethings are feeling increasingly stressed as they worry about their financial futures
Research suggests that while 70% of working Brits feel confident they’ll be able to maintain their current lifestyle next year, for those in their 50s, this number drops to just 59%.
More than half (51%) have been forced to reduce their household budget as living costs have increased, compared to an average of 46% across all age groups.
And the financial strain is taking a mental toll too.
The 900 workers and 100 retirees surveyed were asked about their level of mental strain and stress. A third (37%) of those aged 50 to 59 confirmed that they were “very or fairly stressed” about their current finances. Just a quarter (27%) of those under 50 gave the same answer, while for those over 60, the figure was just one in six (17%).
Financial uncertainty and stress about the future can lead to some tough choices. Worryingly, though, heightened emotions can mean that those decisions aren’t always the right ones.
That’s why it’s so crucial to seek professional financial advice.
Short-term “solutions” can have long-term consequences, and the cost of living crisis isn’t over yet
Inflation peaked back in October 2022, when it reached 11.1%, marking a 41-year high. Since then, it has fallen and – more recently – those falls have become sharper.
The Office for National Statistics (ONS) confirms that the Consumer Prices Index (CPI) for the 12 months to July was 6.8%. This movement is in the right direction, but the Bank of England (BoE) still doesn’t expect inflation to reach its own 2% target before April 2025.
While prices are rising less quickly, and energy bills are set to fall thanks to a lowering of the price cap from 1 October, millions of Brits are still feeling the squeeze.
The issue has been exacerbated by rising interest rates as the BoE looks to get inflation under control.
By raising its base rate, at 14 consecutive meetings of its Monetary Policy Committee (MPC), the central bank has increased the cost of borrowing. As mortgage rates soar, it is hoped that spending will decrease. With a drop in demand comes a drop in prices.
The base rate currently sits at 5.25%, its highest level since before the 2008 global financial crisis. It is also forecast to rise again.
Staying focused on your long-term plans is key to realising your financial goals
Your long-term financial plan is aligned with your aspirations for retirement. If your goals haven’t changed then your plan shouldn’t either. But the cost of living crisis is making this difficult for many.
One in eight (13%) UK workers in their 50s have stopped or reduced pension contributions as a direct result of rising living costs. Meanwhile, just over a fifth (21%) have turned to their long-term savings.
While both these approaches might mean more money in your pocket right now, the long-term ramifications could be huge.
The opportunity cost of lost investments, and the lowering of your financial contingency, could mean you need to delay your retirement and stay in work longer. If you’re determined to stick to your chosen retirement date, you might need to compromise on the lifestyle you lead. Neither option is ideal.
Instead, try your best to cut out the noise of global economic uncertainty and focus on your future self.
Revisit your household budget and look for areas where cutbacks can be made. But prioritise savings and investments. Pay your future self first, then cover fixed expenses like your mortgage, before budgeting with what remains.
This won’t be easy but we’re here to help.
Get in touch
If you’re worried about the effects of the cost of living crisis on your long-term financial plans, we can help. Please get in touch via email at enquiries@hda-ifa.co.uk or call 01242 514563.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
