Schroders Personal Wealth Retirement Report: The impact of the cost of living crisis on retirement plans

Retirement should be an exciting milestone. A time to stop working and enjoy the benefits of your hard-earned pension, with a more relaxed pace of life and the financial stability to be able to live comfortably. It certainly shouldn’t be a time to worry about money and whether you have enough to last the rest of your retirement years.

Unfortunately, the stress and anxiety that the cost of living crisis has brought to many means that the thought of retirement could be far from the ideal it once was, and is further away than many had previously hoped.

Persistently high inflation (a measure of how quickly prices are rising) means that households are having to spend more of their disposable income on everyday goods and services, such as food and energy bills. This then means that they have less to put away for retirement, or have had to dip into savings to cover monthly costs. For some people already in retirement, higher outgoings have played havoc with previously planned budgets, leading to changes to the retirement lifestyle they can maintain, or even a return to work.

What impact is the cost of living crisis having on those preparing for, or in, retirement?

Schroders Personal Wealth commissioned independent research to find out. A survey of 1,000 UK adults aged between 50 and 64 has uncovered powerful insights into the concerns of those planning for retirement and the actions being taken to try to mitigate the impacts that rising costs are having on life plans.

Delaying retirement is a reality for many

We asked the pre-retirees (895) out of our sample of 1,000 people aged between 50 and 64, if they were considering delaying their retirement. Out of those who said they may have to delay their retirement, 48% said they were thinking of delaying by 1 or 2 years. Notable proportions said they were considering delaying for longer: 28% by 2 to 4 years, and 24% for 4 years or more. Furthermore, 45% of pre-retirees told us that they will need to continue working indefinitely to live comfortably in retirement.

Of those already in retirement, one-fifth have already returned to part-time work to help maintain their lifestyle.

Nearly 200 respondents said that they had no plans to retire in the next ten years. Unsurprisingly, the majority (42%) cited the reason as they would not reach retirement age in the next ten years. However, worryingly, one-third said it was because they wouldn’t be able to afford to retire.

Planning for retirement is not a priority

For younger generations, nearer-term events are likely to be at the forefront of their financial concerns: saving for a deposit to get on the property ladder, having a stable income to provide for starting a family, earning enough to help with their children’s university fees. Retirement seems so far away it’s unlikely to be top of the financial priority list. And with most companies paying in monthly amounts to employee’s pension pots, younger generations likely think they are already doing enough.

For those closer to retirement, you would expect more thought to be going into this upcoming new stage of life. However, our research highlights some notable divergences from this assumption.

Our 1,000 respondents were aged between 50 and 64 years. For those in our sample that had not yet retired, two-thirds either did not know or weren’t sure how much money they needed to live comfortably in retirement. 37% either did not know or weren’t sure how much money they had in their pension(s).

Encouragingly, 67% said they had reviewed their pension pot(s) within the last five years. But with the financial backdrop having changed so much through the Covid-19 pandemic and the more recent cost of living crisis, a pension review five years ago is likely to be out of date.

Retirement planning is causing anxiety but people are not seeking financial help

Struggling with monthly budgeting and worrying about having enough money for the future can have a big negative impact on our mental health.

67% of our respondents that had not yet retired said they were worried about the impact the cost of living crisis would have on their retirement plans. 21% said they felt “stressed and anxious” about their finances, with a further 56% saying they now think about their finances more than they used to.

The cost of living crisis is having an immediate impact as many households struggle with day-to-day living costs. But it is also presenting challenges for people’s future financial plans. Of our respondents who had not yet retired, 29% said they will have to delay their retirement specifically because of the cost of living crisis, with 38% not yet sure if they would need to delay their retirement.

Despite these worries, a concerning 63% of respondents said they had not spoken to a professional financial adviser about their retirement plans since the cost of living crisis began.

If you’re concerned, consider seeking advice

Recent years have seen a rise in the publicity around mental health issues with the aim of getting us all talking more and taking action to improve our mental wellbeing. But financial wellbeing is often overlooked, and many of us still feel embarrassed talking about our finances or that it is a private matter we don’t want to share with others.

However, our research shows that concerns around the cost of living crisis and the impact this could have on retirement plans is having a negative effect on our wellbeing. You may feel uncomfortable talking to friends and family about your financial concerns, but if your finances are causing you anxiety then speaking to a professional financial adviser could help alleviate the stress.

Simply knowing exactly what’s in your pension pot and what you need to work towards to secure your retirement could help you feel more in control.

Source: SPW Cost of living impact on retirement survey, February 2023