A significant number of people over 55 are making substantial cutbacks in an effort to be mortgage-free by the time they retire, according to Key Later Life Finance, as the ongoing cost of living crisis continues to strain personal finances.
A survey by the equity release adviser found that 57% of over-55s are making sacrifices in the lead-up to retirement to avoid mortgage payments once they stop working. About 31% are reducing general spending on leisure and entertainment, while 14% are cutting their pension contributions to pay off their mortgage.
Nearly 18% will only manage to be mortgage-free by delaying their retirement age. This comes alongside research from the Financial Conduct Authority, which revealed a 29% rise in people buying their first home in their 50s between 2018 and 2022. Meanwhile, UK Finance data shows that over 60% of mainstream mortgages now extend beyond expected retirement ages, up from 20% two decades ago.
Among those who don’t expect to clear their mortgage before retirement, 70% anticipate making payments for at least two more years, while 13% believe they will be mortgage-free within 12 months of retiring. The cost-of-living crisis is cited as the primary factor preventing people from paying off their mortgages, with 30% having experienced pay cuts.
Over 10% plan to explore later-life lending solutions such as equity release, specialist mortgages, and retirement interest-only mortgages. Chris Bibby, managing director at Key, emphasised the growing issue of retirees still paying mortgages and expressed concern about the sacrifices people are making to ensure they are debt-free. He highlighted the need for more flexible financial solutions and recommended that over-55s seek specialist advice to better manage their finances leading up to retirement.
Anna Griffiths – Clear Technical Manager
Tales of the Top Ten
You will find TENS everywhere………
Anniversaries, speed limits, or recipes, we are used to rounded tens.
Well, the evolutionary reason for this is simple – ten fingers! That means people have been used to writing top ten lists for ages. For example, here are the top ten companies in 1900, it screams ‘Have you heard about the railways?!’
There’s a LOT of focus on the biggest companies in the US at the moment – so it’s helpful context to look at some of the stories of the top ten over the past 120 years.
The bars below show the weight of the top ten as a percentage of the index in the first year of each decade, with 2024 included too.
1. The feast/famine pendulum: The size of the top ten swings about a lot. At some points, the big stocks seem like the only game in town (like the 1960s, or the 1990s) and at others, not so much (1920s, 2010s). There’s no “right” level – but there are periods where things swing one way (lots of small businesses competing, say), and then swing back the other (to a few very dominant businesses). And the pendulum will keep swinging.
2. Speed of change isn’t captured: That pendulum shift can happen very quickly, and the decade-by-decade approach misses some of that subtlety. In 1999, the S&P (Standard & Poors) top ten was FULL of internet stocks (and about 25% of the index), but by mid-2000, the dotcom bust has meant banks, retailers and oil companies were back, and the top-ten had shrunk to 17%. Or take the fact that our tens-focussed approach entirely misses the financial crisis – the rise and fall of big banks is nowhere to be seen.
3. Not so similar: Looking just at weights, the 1990s seem to be similar to today, with the top ten representing more than a third of the entire index. But look under the surface…
The 1990’s top ten list was far more balanced, with eight entirely different industries represented. Big businesses but doing very different things. 2024’s top ten list has a concentration problem and a weight problem. The index today is top-heavy, and in similar areas.
Media as a Friend and Foe to Financial Advisers
Financial advisers are all too familiar with the Pareto principle, the 80/20 rule; roughly 80% of consequences come from 20% of causes. However, when it comes to managing clients’ financial lives, the reality is even more distorted. About only 1% of our clients’ attention is captured, while the other 99% is consumed by mainstream and financial media. Unfortunately, much of this media is filled with investment advice from investing illiterates who lack a deep understanding of clients’ long-term financial goals and investment market history. Based on this 99/1, it’s amazing that clients listen to us; it shows the trust they have when the noise to the contrary is overwhelming.
Take, for example, the recent “perfectly normal” decline in the global stock market. It was a standard correction, part of the market’s natural ebb and flow, but the media, sensationally, turned it into a dramatic event, causing unnecessary panic among investors. Clients who spent most of their time listening to this noise might have been frightened into making rash decisions, potentially derailing their long-term financial plans.
This is where, real-life financial advisers, come in. Clients have the advantage of being guided through the tumultuous waves of market noise. The financial media is often bent on sensationalism, which can lead to misguided financial decisions. Advisors are steadfast in their commitment to keeping clients aligned with their financial plans and long-term goals.
In many ways, the financial media can feel like the adversary. They’re the ones creating the fear, causing the distractions that pull clients away from their carefully constructed plans. But ironically, this makes the adviser’s role all the more vital, being the clear, rational voice amid the chaos.
This guidance is often counterintuitive and countercultural. While the media may incite panic, advisers urge patience. This is the real good that financial advisers do: they are the guardians of clients’ financial futures, ensuring that they stay the course even when the media is shouting the loudest. In the end, while the media may be a foe in spreading fear, they also remind us why the adviser’s role is so critical, cutting through the noise, keeping clients focused on achieving their financial goals.
Of axes and air con
The economy is aways the problem to solve for ay government, left or right. Should spending go on fixing potholes or building spaceships? Is this down to financing or training? Should new industries be promoted, or should there be more support for ailing ones?
How and where should a government intervene?
In 1921, the then head of the U.S. Department of Commerce, Herbert Hoover was faced with this question when tasked with ramping up growth in the U.S. economy and was frustrated.
Even though he saw individual ingenuity everywhere, it rarely scaled up into serious companies, so he thought the reason was simple – No-one had any standards.
For example, for chopping down a tree there were 994,840 varieties of single-bit axe for sale. It wasn’t just axes*. There were 90 types of blackboards for use in schools, 33 different lengths of hospital bed, 29 kinds of milk bottle caps!
This lack of standardisation made it almost impossible for real competition to take place. Consumers were unable to tell who had the best blackboard, the best screw, or steel when there were thousands of versions, all slightly different.
Hoover simply told every single industry that they needed to impose standards which the government would track and measure through a newly formed Bureau of Standards.
He did, however, let the industries decide themselves what the standards should be.
This was so successful; Hoover was called at the time ‘the Secretary of Commerce and the Under-Secretary of Everything Else’ and went on to become the 31st President. This was by letting the people with the most relevant knowledge agree their own rules, and then get cracking!
30 years after Hoover entered the Oval Office, Lee Kuan Yew became Prime Minister of Singapore, and he had similar beliefs to Hoover – get the basics right and then get out of the way!
In 1954 Singapore’s GDP per capita was less than $500, when Lee died in 2015, GDP per capita was more than $55,000.
When asked what the secret to Singapore’s success was, Lee said “Air conditioning. Air conditioning was a most important invention for us”
Before air-con, no-one could work through the middle of the day in Singapore. So, air conditioning was put in all office buildings and productivity soared in the civil service, in banks and in factories. Get the basics right, and let people get cracking!
And so to today……
Most business leaders in the UK don’t want targeted government help in their industry** They want the basics to be good across the economy, and then to be left alone. Economic history suggests they may be right. Let’s see if the politicians listen.
PLEASE NOTE: THE NEXT NEWSLETTER WILL BE ISSUED LATER AS IT WILL BE BASED AROUND THE UK BUDGET ON 30TH OCTOBER AND WE NEED MORE TIME TO DIGEST THE BUDGETS CONTENT.
