Transcript: Attitudes to spending in retirement
Shirley: I'm Shirley Ballas and welcome to Rewirement, the retirement podcast from Legal and General. I'm on a mission to help you reset, reinvent and rewire for the retirement you want.
Every fortnight, I'm joined by fabulous retirees and would- be retirees with their own unique take on retirement. I'm also hoping that my pension pots will all add up so that I will be able to buy my camper van. Plus, my brilliant panel of experts will be diving in to tackle the big questions. They'll share their suggestions to help make your post- work years the most exciting of all.
This time, we're turning big dreams into big realities. Whether you want to travel the world, start a business, devote yourself to your hobby or live the quiet life, this episode is for you. I'll be back with my retiree friends to hear their plans, then I'll be joined by Claire Singleton, who's CEO of Legal and General home finance, and Kara Gammell, who's a journalist specializing in personal finance in later life. They'll be sharing their wisdom on how to plan for the lifestyle you want. Thanks for downloading Rewirement, The retirement podcast from Legal and General.
First, I wanted to look at two sides of the coin. Sue and Debbie both belong to an amateur dramatic group in Sussex. Debbie has a vision for retirement, but it's a way off yet, and she hasn't yet planned out the details. Sue, on the other hand, is managing her retirement day to day with a full and active social life in a local community.
Debbie, what is your vision for retirement, and do you think you're on track to achieve it right now?
Debbie: I don't know if we're on track to achieve our retirement dreams, but I think we have very specific ideas of what we want to do. What we'd ideally like to do, I mean, we live near the sea now, but we'd like to live right next to the sea. And I think in order to do that, we're going to have to go down to the west country, out of the way, where there's not very many people around, where we don't have to commute anywhere. So we're going to have to downsize, but that's fine. It'll just be the two of us by then. The kids will have moved away. Well, that's the plan. I don't know whether they will have done.
Shirley: They always come back, darling. I assure you.
Debbie: Exactly. So yeah, move down to the west country. I think even if what we've planned for our pension, it isn't quite enough for us. I think by downsizing, that should give us enough to actually start that dream. But I'm hoping what we have got as far as pension goes, will help.
Shirley: What do you think life would be like if you retired tomorrow?
Debbie: I think lack of a regular salary would be tricky to start with, but it's certainly not insurmountable. I think if we retired tomorrow, it would be a culture shock, but I think we'd get by and we'd just tighten our belts and go for it.
Shirley: And Sue, were you thinking like Debbie, when you were her age? If not, what are the differences you see now, talking to Debbie?
Sue: I don't know. I mean, I didn't give it an awful lot of thought and I didn't actually have a bucket list of things I was going to do when I was younger. Certainly as I came up to retirement, I did then start thinking, " Oh, I'll be able to do this and that, and get out more and have a bit more freedom and hopefully enjoy life." But we weren't thinking of moving home anyway, which obviously Debbie is. So she's got far more of a plan. Yeah, I had thought of what I might do, but not in the detail that Debbie has.
Shirley: Do you feel, Sue, in the last 20 years though, people have different expectations now?
Sue: Yeah, I think they have. I think people's expectations are far bigger than they were when I was younger.
Shirley: Do you think due to the internet and the changing in the whole of the life?
Sue: I mean, we've got so much knowledge now and we can see what's being done all over the world, and it must have an effect.
Shirley: Do you feel that, Debbie? Do you feel that's influenced you at all?
Debbie: I think when I first started out saving for my retirement, it was a very different world, and the only things I had to go on were what my parents had done and what their peers had done and my grandparents and that kind of thing. Nowadays, yeah, there is a lot more to be seen. You just go onto social media and there's pictures of people retired, enjoying themselves. So yes, it is very different now, and you see more. I don't know whether the actual world has changed that much or whether we just see more of it. I don't know.
Shirley: So what about our choir team, Marcus and David? In our chat, David told me that when he retired, he spent the first few years redecorating the house and writing a book. What does Marcus envision his retirement will look like?
Marcus: Well, I feel like I've been traveling the world with my career in a way. In some ways, I'd like to settle down a bit. I think my wife and I have a plan that is not really very advanced in our thinking, but I think we would love to have a cottage somewhere in the countryside, as well as a pad in London. So when the time is appropriate to sort of downsize from the family house, if it's not wildly unrealistic to trade that in for a flat somewhere in London and then a cottage in the countryside. And then the cottage, I think, would be the primary project. It would become sort of the focus of your leisure interests, would be around the countryside and making roots in a new community and looking after a cottage.
David: What I heard you really want is a Lamborghini.
Marcus: Well, I think one of the tricks of your retirement planning is not to let your ambition go above your means. I'm a great believer... I think it was Charles Dickens wrote something about this in one of his novels, but I'm a great believer in the philosophy that sort of satisfaction in life is to have a set of expectations that is just slightly below the resources available to you. It's when you sort of come into a bit of financial success and then start mixing with a faster crowd and expect to have all of your holidays in the Caribbean and to drive impressive cars, that you find yourself being sorry for yourself of not being able to live up to your means. But if you keep your expectations in check, then you can be happy on any amount of money.
David: I mean, it was the case when the pension reforms that happened in the past 10 years, gave people the opportunity to take far more cash out at retirement age or from age 55 onwards, that there was this big concern that people would blow it on ridiculous and unnecessary things. And from what I've been reading recently, that, of course, there's an element of that. There's unfortunately an element of scamming, which has affected some people, but the vast majority have been relatively sensible and those pension reforms have worked pretty well.
Shirley: Colin and Tracy are still mulling over their future plans. Tracy's done a lot of work on a house and lets out rooms to foreign students, which helps support her salary. How are you going to afford to have your camper van and everything else that you're looking forward to in your retirement?
Tracy: Well, the thing is at the moment, Shirley, I'm hoping early sixties, I will have enough because I'm hopefully going to pay my mortgage off a little bit earlier by overpaying, by having all of my lovely European students come and stay with us. I'm also hoping that my pension pots will all add up for early sixties so that I will be able to buy my camper van and go on holidays abroad to see the... I didn't mention this earlier, but we've got family in Spain.
Shirley: Oh, lovely.
Tracy: We've got family in India, and we've got family in Wales. So my children are half Welsh, a quarter Indian and a quarter Spanish. We've got family all around the world that we want to visit. I'm not feeling secure in the fact that I'll be able to finish work and retire at 63, 64 to do that.
Shirley: But are you putting a little bit aside for that dream?
Tracy: It's all in the house, Shirley.
Shirley: All in the house.
Tracy: It's all about the house, so it's either early sixties, going to be a case of downsizing, or it's going to be a case of keeping the students coming, and we'll have our students. We enjoy hosting them. We enjoy sort of meeting people from different countries, different cultures. I would be more than happy to do that alongside my retirement, if it means I could retire.
Book them in for certain months of the year and then go off, do our little travellings other months of the year, as it were. I'm hoping we are on track, but I don't feel secure about it, Shirley, and I think I do need to get more advice. The other factor is my partner. So my partner has got an NHS pension, which is quite small because he hasn't worked there for very long. So it's how we managed to retire at the same time. It might be me, swanning off round the coast of Britain by myself, Skyping him while he's still at work. I don't know, but we'll have to see. It's all a bit up in the air, but I'm hoping everything will come together.
Shirley: I'm sure with your positive attitude, it will. I'm sure. Colin, how are you going to afford the lifestyle that you want during retirement? Have you put something aside? What are you going to plan?
Colin: Not really putting anything aside at the moment. That was a plan of mine, was to put a lump sum away each month, and then we could draw down on that just as a fund somewhere. Wouldn't necessarily invest it in anything special. And we could probably put away money for five years and then that would help subsidize our standard of living for 10 years, for instance. I have got these pension pots I've mentioned, that I've consolidated and we'll probably take some of that out. We will consider downsizing.
I think, given an opportunity, a part time job or something to help tide you through as well. And not really only for that reason, but to still get the sort of social contact. I think if you've worked for 40, 50 years then to suddenly drop out of that and just potter around in your garden, you miss the camaraderie and the social interaction with people in the working environment. So that's something I definitely would consider as well. We'd have a little bit of teachers' pension from my wife as well, and then it would just be topped up with the basic state pension as well.
Shirley: Some inspiring plans, hopes and dreams from our brilliant Rewirees. It definitely sounds like they're well on their way to the next adventure. Now to tackle a few of the questions that cropped up. How do you make sure you have enough income to make your plans happen in retirement? What counts as living comfortably? And what approach to saving and spending is best? I'm joined by Legal and General CEO of home finance, Claire Singleton, as well as journalist Kara Gammell. Welcome, both, and how are you both doing?
Kara: Hello, thanks for having me.
Claire: Hi. I'm well, thank you. Good to see you.
Shirley: So we have some questions here for you, and we'll start with Claire. Claire, when we talk about retirement income, what does that cover?
Claire: Retirement income can be in multiple, multiple sources for many people. And I mean, first of all, many people talk about retirement income and think of their state pension. But many people may also have a private or a workplace pension, and people may have some various savings that could be in the form of an ISA or a savings account or other investments. But increasingly, people are also considering the equity in their home as part of their retirement income. People may be in a position where they have paid off their existing mortgage already, or have seen avail uplift in value in their home and so have an incredible amount of equity of which they can think about using as part of their retirement income.
Shirley: Kara, how on earth do you afford a retirement that could last for 20, 30 or even 40 years?
Kara: You know, this really is the million dollar question because after all, how can you prepare for something, financially, if you don't even know how long it's going to last? Most of us, we have no idea how long we are going to live for. And chances are, even if we could guess, we would underestimate it wildly. So, ONS figures show that a 65 year old man has a 50% chance of living to the age of 87, and a woman of the same age has a 50% chance of making it to the age of 90.
That's quite a significant period of time to cover with your pension. So even though the uncertainty can make it difficult to plan, the best idea is to try and save as much as you can, to ensure that you have a secure retirement, cause you need that income. You need to keep food on the table and a roof over your head. It depends on what type of lifestyle you want, but also how much money you have coming in, in the lead up to retirement. So the best thing to say is, save as much as you can.
Shirley: Keep saving. And when you've saved, keep saving some more?
Kara: Exactly. And the earlier you start the better, but it's never too late to get started. Anything is better than nothing.
Kara: Lots of unexpected life changes can have a massive impact on your retirement income. You know, life will have its ups and downs and often those are beyond your control. The only thing you can control is how you react to those changes. So whether it's divorce or ill health or a bereavement, these can sideline your pension savings. Even the best plans can go to pot, frankly. So you always want to have an alternative. So whether it's protecting your income with insurance while you're working, so that you can still have your salary in order to contribute to your pension fund, or if it's you getting divorced, you need to look at a pension.
It's not just about who gets the house, but who's going to get the pension , or part of it anyway, and also having a will in place. So if you do have a bereavement, that's one less thing for you to worry about. You can't stop these things from happening necessarily, but you can at least try and make sure that you're ready in case they do.
Shirley: Claire, let's talk about the term lifestyle. What do we mean by that, and what does a comfortable lifestyle look like?
Claire: Yeah, I mean, it's an interesting question because lifestyle means a very different thing to different people. People have various different plans and aspirations for their lifestyle and for their lifestyle in retirement. We look at various scenarios. Your lifestyle can very much depend on whether you're single, married, divorced, whether you have children. And there's been various interesting analysis on living standards. And so we typically look at it in different buckets.
We look at the home, which includes your bills, your maintenance, costs of decorating a category of food and drink. So basically, your weekly allowance and weekly shop, eating out, and then a category of transport. Do you own a car? Do you have other transport needs? Then I look at a bucket of holidays and leisure, and then clothing and gifts and helping others. In general, we would say, from analysis, that if you're a single person, to have a relatively moderate standard of living in retirement, you need about £20, 000 a year.
For the minimum standard of living, you're looking at about £ 10,000 a year. And then if you want a more comfortable standard of living, that goes up to around £33, 000 a year. Now, clearly that very much depends on your personal circumstances and exactly where you're living in the UK. But clearly there is a decent amount that is needed on an annual basis to have a decent standard of living.
It's really important that people divide their spending when they're thinking about saving into essential and nice to have. So it's good to consider your pension fund and a guaranteed annuity and income from say, your state pension or a pension that's turned into an annuity on top of that, into your essential living costs. So to make sure that you can cover your essential living costs, and then we would recommend using savings and other income to fund that nice to have.
People also need to have a think about what's their preference in terms of leaving a legacy? So do they have loved ones that they want to pass things on to when they die, or actually would they prefer to have a living legacy? So would they prefer to pass some of that intergenerational wealth on while they can still see the benefits of that? Different people have different preferences and different scenarios, but it's definitely something that we would advise thinking about early. So I know Kara has talked about saving, but in terms of how much you're saving and what that's for, we would definitely recommend thinking about what your future wishes would be.
Shirley: Claire, lots of people see retirement as a chance to tick things off the bucket list and do the things they didn't have time or money for when they were younger. Do you need a lot of money to do these things realistically?
Claire: Yeah. I mean, it's all about for planning on that. So yes, absolutely, people know I have increasing aspirations for retirement, and really it is thinking about, what are those and how quickly do you want to do them? And how much of saving do you have? I mean, we've seen quite a lot of aspirational purchase or things in retirement. I work in a business where we provide lifetime mortgages and we see people taking a lifetime mortgage, really to fulfill some of that bucket less often. So we see 36% of people take a lifetime mortgage to refurbish their home. 17% of it take it to go on holiday. 15% of people take a lifetime mortgage to help a family member with a deposit on a house. So really, people are using lifetime mortgages to be able to fulfill their bucket list.
Shirley: Kara, we're talking about making positive plans, but should we have a backup plan for when the unexpected happens?
Kara: Absolutely. I think it's crucial to have a backup plan because so many things can go wrong in life, whether or not you expected them to or not. So whether it's your health, I mean, you might assume that you can work on until your seventies. But you don't know, you may have poor health and have to stop working in your early fifties, and that would massively have an impact on how much you're able to put away into your pension. But also, it means that you have to be able to cover all your bases, and the best way to do that is to have a plan in place, and then a backup plan on top of that.
A plan is fairly pointless if you don't keep it updated. So you need to think of it kind of as a roadmap. If you went on a trip, you would take the map with you, but you would check it often. If you encounter traffic or an accident on the roads, you would maybe go another way. Retirement is very different than what it used to be in the past. They say 70 is the new 60, and suddenly you find yourself in a position where you don't need to work because you can take your retirement and you have your health.
So suddenly, you have all this extra time. You want to have some money to be able to enjoy yourself while you're at it. I think, you know what? I've done my living like a pauper days, and that's when I was a student and fresh out of journalism school. I do not want to do that when I'm in my seventies. I want to be able to enjoy myself and travel, and who knows where my daughter will live? You know, I want to be able to the most of it, because if I'm lucky, I'll live for a very long time. When you look at my father, who's 71, and compared to what my grandfather was like at 71, 30 years ago, the difference in their lifestyles is huge. And my parents are having a whale of a time.
Shirley: What happens if you get partway through your retirement and realize you're going to run out of money?
Claire: Yeah. I mean, clearly we would firstly say, try and plan and save as much as you can to avoid that happening. But I think what you need to do really is budgeting is very important. It's really important to look again at what is essential versus nice to have, and make sure that you're very clear on what you're doing with your finances there. Then also, there are various options for people. Clearly they could downsize, so they could move home and downsize, or they could look at a lifetime mortgage. Taking a lifetime mortgage, gives people lots more flexibility.
It's an option for many people, but it requires serious consideration and advice. But I just thought I'd talk through some of the pros and cons of taking a lifetime mortgage. So you can take a lump in one go and that's tax free cash. You can either take it in a lump or you can choose a more flexible way to take that money. So you can take it in smaller sums as you wish. You can spend that money as you would like in terms of home improvements, or I think we've talked about helping your loved ones get on the property ladder. You can choose how you repay a lifetime mortgage, so you can choose not to make payments, or there is options where you can actually choose to pay the interest during the lifetime of that loan. So there is flexibility around a lifetime mortgage. You can also obviously stay in your home, which is really important to people.
So you don't necessarily need to downsize. When sometimes people think that they might, you have the benefit of still staying in your property. There is also a no negative equity guarantee. So no matter what happens, you'll never repay more than the value of your home when it was sold which is really good protection. And you can also think about, in terms of inheritance protection. If you did want to pass on a certain amount from your home, there is an option to look at inheritance protection around the product as well.
But it is, as I've said, something that people need to consider in depth. There are clearly some negatives that people need to think of as well, which is, it does often reduce the inheritance that you will be passing on. I know we've discussed inheritance and expectations a little, but it is definitely a key consideration. Clearly, you pay interest on a lifetime mortgage and that can build up. So people need to look at how much that interest is that rate of interest, and really understand that.
If you did want to repay that mortgage, there is often a repayment charge. So you need to understand that repayment charge, and also, you should look at it and seek legal advice or financial advice around any impact on any of the other benefits that you might be receiving. So there can be an impact on some of the means tested benefits. Those are the things I think people need to weigh up when they're considering a lifetime mortgage. I mean, it's important to note that, on our products, we also offer downsizing protection. So if you took a lifetime mortgage, but then you did want to consider your options later down the line, it is possible to move your lifetime mortgage with you, if your new property meets the relevant criteria.
Shirley: Tracy talked about all her money being in the house. She's extended it and rents to students. What are her other options? Is downsizing the best way forward to free up cash?
Kara: I think a lot of people worry about when it does come to retirement, that they will have a pension pot of money and they need to make it last. And suddenly, if you're not working, you feel like you don't have any extra money coming in and it must be quite overwhelming. The good news is that you always have options. You know, there are other ways that you can supplement your income. We always say, in the industry, always make sure you do a benefits check. You might be really surprised what you may be able to claim. Each year, £ 3. 5 billion pounds worth of benefits go unclaimed by older people.
And you never know what you may be able to get. And you know, every little bit helps. It makes sense to spring clean your finances every year. Make sure you look to change your energy bills, your insurance. Those two things alone can save you hundreds of pounds a year. Loyalty does not pay any more when it comes to your utilities, so make sure that you shop around. Set a note in your diary and keep a tally. It's very satisfying. I like to think of it as, I've given myself a bonus, when I see how much I've saved, and then treat myself.
Also, if you have several rooms empty, yes you can take in a lodger. Students or people that commute for the week, under the government rent a room scheme, you can earn up to £ 7500 a year tax free, and that can be a nice little boost to your bank balance. Another option is, other than just renting out spaces in your home, why don't you look out in your driveway? If you have a nice big driveway or even a parking spot that's going spare, you can actually rent that out and make some serious cash. Commuters are desperate to find parking places near the train station. Trust me. You can do so on this called justpark.com, or yourparkingspaces.co.uk. And depending on if you're away, or it's empty and you don't drive, it's a nice little earner for you. There are lots of options. You just have to get a little creative.
Shirley: Many people want to leave an inheritance for children. Do you think that children still expect this?
Kara: This is a really interesting one for me, because where I'm Canadian and I moved to the UK about 20 years ago, and nobody expects to inherit anything at home, it seems like. So when I came to England, it seems quite surprising that people expected to inherit money or parents expected to leave significant lump sums to their children. Yes, it's probably something that maybe might be changing a little bit because people are living so much longer now, their seventies. It's called skiing. So spending the kid's inheritance. You want to go out and enjoy your money because you have your health, where 30 years ago in your seventies, and it could have been a different lifestyle. So I think a lot of people in retirement are asking themselves if they can have a balance, maybe leave some and still enjoy themselves.
But a lot of people, a lot of parents, older generation are leaving... They like to pass the money on while they're still alive to help people get on the property ladder. The younger generations are struggling with massively high rent bills. They can't also rent a property and try and save to get on the property ladder. So that money really can come in handy when they're younger, as well. But at the same time, I don't think that anyone should assume that they're going to inherit anything. While it would always be nice, I don't think it's your right, but I do think it's much better to discuss it before the will is read out. It's hard enough grieving a loved one and then find out there's nothing left to pay the funeral bill, for instance, would be very disappointing. Let alone no cash lump sum.
Shirley: I'll tell you this funny story. When my son was about 19 and got on Dancing With The Stars in the United States, I said, " By the time you're 25, Mark, you need to think about owning your own apartment." I said, " No matter what you save, I'll match it." I should never actually have said that. At 24, he came to me and said, " Mummy, I'm ready to buy." And said, " This is what I've saved." I nearly fell over.
Kara: That backfired.
Claire: You encouraged him to say it, so that's good. Good on you.
Shirley: It sounds like, whatever your personality and plans, there are some clever things you can do to manage your money during retirement and still make this period of life a great adventure. If you're a planner like me, or a worrier, then hopefully that's put your mind at rest and given you some inspiration for the next steps. I still love that campervan by the coast idea. You can find out more about retirement planning at legalandgeneral. com/ retirement.
In our last episode, we'll be diving into an emotional topic; how to share money with others in your retirement. Whether you want to leave an inheritance, or support loved ones whilst you're still around to enjoy it with them, we'll be asking the important questions once again. Subscribe on your podcast listening platform. You'll get it on your device as soon as it's available.
Whether you're planning a retirement spending the kid's inheritance, or perhaps you just want to be able to have enough to enjoy some big dreams when you get there, the experts are here to help.
In this episode Shirley Ballas meets more of our honest rewirees and would-be rewirees and finds out some of the questions facing them in building a future they can look forward to and enjoy.
Financial journalist Kara Gammell and Legal & General's Claire Singleton chat about some of the issues around financial planning for everyday essentials AND big ticket items when there’s no longer a salary coming in.
CEO, Legal & General Home Finance
Claire leads the team at Legal & General Home Finance (LGHF) - one of the UK's leading providers of later life borrowing.
Having entered the market in 2015, LGHF now supports one in three lifetime mortgage originations in the UK, has over 20,000 customers, and has released £3 billion in total lending.
Kara is an award-winning personal finance journalist. She has written regularly for a number of national newspapers and magazines, including The Daily Telegraph, The Sunday Times, The Guardian, The Observer, as well as Saga Magazine. She also writes the money saving blog: Your Best Friend’s Guide to Cash. Originally from Canada, she lives in West Sussex.