Turning 55? Find out how it could affect your finances

Holly Thomas / 01 February 2017

Turning 55 is a landmark birthday in the world of finance, which means there’s a lot to get to grips with. Here’s what you need to know…

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Turning 55 this year? You’re not alone. In fact, more people in the UK than ever before will reach their 55th birthdays this year, according to the Office for National Statistics. Nearly 900,000 people will celebrate this age, compared to fewer than 600,000 in 1990.

It’s a landmark birthday in the world of finance, which means there’s a lot to get to grips with. Here’s what you need to know:

Your pension becomes unlocked

At the age of 55 you are able to access your pension fund and draw on it almost like a bank account, thanks to the pension freedoms brought in during 2015.

While it means having greater control over your money, it’s important to make the right decisions about how to use it - and not rush to withdraw it.

Experts are unanimous that rushing to draw on money too soon could mean running out of cash. A worrying new study reveals that record numbers of people (42%) have been forced to step back from work earlier than planned. It is feared this group are most likely to take cash in the early years of retirement and risk finding themselves short. The financial consequences are likely to be magnified as people may have to wait longer to claim the state pension.

Dispelling pension myths

Those choosing not to buy an annuity are going to need to generate a significant investment return to see them through retirement, which is now stretching beyond 20 years for the majority of people.

Taking professional advice on how to make your money last as long as you need it to is crucial. You may want to consider using a mixture of an annuity, income drawdown and cash withdrawals.

Informative, in-depth and in the know: get the latest money news with Saga Magazine. 

You are now able to use equity release

Equity release is a loan taken against the value of your home for those aged over 55. You are still able to live in and own your house. Like a mortgage, interest is charged on the amount borrowed. However, unlike a mortgage, interest is typically not repaid, but rather rolls up and is paid off when the borrower dies or goes into care. There is also a home reversion scheme where the provider will own some, or all of your home.

There is a drawdown version, designed for those who don't need a large cash lump sum at the outset. Instead, a pot of money is earmarked for you to draw on, as and when you need it. You only pay interest on the cash you release, which could save you money and allow more to be left as part of your estate.

Homeowners are increasingly interested in tapping into the value of their home thanks to long-term growth in UK house prices. The total value of equity release lending surpassed £2 billion for the first time in 2016 marking a landmark year for the sector, according to the latest figures from the Equity Release Council.

Five equity release pitfalls to avoid

A separate study showed that the average sum taken is £78,000. Some 63% of customers used all or some of the cash for home improvements, 31% used the money to clear loans and credit card debts and 24% used their property wealth to fund a dream holiday while 24% supported a family member.

Nigel Waterson, chairman of the Equity Release Council, says: “Housing wealth is becoming an increasingly important focus of retirement planning. The equity release market continues to become ever more competitive with growing choice and falling rates for customers a welcome consequence of moves by new and existing providers.”

Yet equity release isn’t right for everyone. It’s important to seek guidance and to explore alternatives. If you decide to go ahead with an equity release plan, choose carefully as there are different types, some with complex charging structures. Some have a lower interest rate but they may have other charges.

Equity Release – discover helpful, expert advice with no obligation. 

Top tips

Don’t forget to look out for new discounts available to you at age 55.

1. Odeon Silver Cinema

Tickets are available on selected films and screening times from as little as £3 when you book in the cinema, or £3.50 online. 

You can book up to four weeks in advance and pre-movie tea, coffee and biscuits are included. Visit odeon.co.uk/silvercinema

2. Arriva Club 55

If you live in or visit Wales and are aged over 55 you can travel throughout the country by train at discounted rates with an Arriva Club 55 card. The discounts only apply for off-peak travel but there is no need to book in advance. Senior Railcard holders get a further discount of £1. Visit: arrivatrainswales.co.uk/club55

Next article: How to claim discounts if you are over 50 >>>

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.