Your saving strategy for 2011: the recently retired couple
Read our 2011 saving strategy for families here
Read our 2011 saving strategy for young professionals here
Our savings have taken a serious battering over the past year. The average instant access interest rate is now just 0.79%, according to Moneyfacts.
Added to this, many of us have been forced to dip into our rainy-day funds. The average Brit's cash reserve is currently a meagre £1,771, according to ING Direct, which falls well short of the recommended
minimum for emergency savings (equivalent to three months' salary).
With a barrage of public spending cuts set to hit in April and more job losses on the horizon, growing our financial safety net should be top of our agenda for 2011.
Yet this idea was thrown into question in September when the deputy governor of the Bank of England, Charlie Bean, surprised us all by suggesting we should be out spreading our cash around instead.
Bean told Channel 4 News: "In the short term, we want to see households not saving more but spending more."
Frittering your money away might be good for the UK economy as a whole, but with personal debt standing at an all-time high, getting into a savings habit is surely more important than ever.
So where do you start? As with all financial decisions, the right choice will depend on your personal circumstances.
Here we take a look at the dilemmas facing the recently retired, and offer some solutions.
THE RECENTLY RETIRED COUPLE
New retirees Maggie and Peter are adjusting to a slower pace of life. Maggie, 59, recently retired from her job in banking, and Peter, 62, is winding down his plumbing business while still carrying out the odd job.
Maggie has a large company pension and Peter has a small personal pension, and between them they have £40,000 spread across several cash ISAs earning very little interest.
They will be mortgage-free in three months' time and want to get their finances in shape for retirement. "We want to find the best home for our money so we can access it fairly easily and not put the capital at risk," explains Maggie.
What they need to consider...
Maggie and Peter are facing the same sort of tricky decision that many retirees struggle with: how to rearrange their finances to provide an income while keeping their savings safe.
However, because they don't want to tie their money up or expose it to any risk, they're restricted to keeping their savings in cash.
As they have a pretty sizable sum, they could look into directing a portion of their savings into short to medium-term fixed-rate bonds that currently pay a bigger return than ISAs and instant access accounts.
For example, rates on one-year bonds are around 3.15% at the moment, rising to 4.5% for five-year fixed-rate accounts.
Turning to their pension situation, the couple has some decisions to make about when they want to access their funds, as this will affect how soon they need to shift the focus of their pensions away from equities to lower-risk options.
Maggie and Peter should also consider whether they want to buy an annuity. They should get a quote from their current pension providers before shopping around to compare rates. They could do this themselves, or with the help of an IFA.
With pensions in place and the mortgage almost cleared, there's no reason why Maggie and Peter can't start spending some of their savings as well.
Expert advice from IFA Anna Sofat
"It is likely that Maggie's pension is a final salary scheme and as such this should be left alone until she is ready to draw on it. Peter's pension, on the other hand, is likely to be invested in funds, and he needs to decide when and how he wants to take the benefits.
"If it's in the next three years, I recommend he move funds to lower-risk options such as gilts, corporate bonds or even cash.
"If he decides to use his pension to buy an annuity, he needs to think about when is a good time, as the older he is, the higher the annuity rate will be."
Our savings advice comes from Anna Sofat, who is a highly regarded financial expert and founder and director of Addidi, a wealth management company in London.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
The familiar name given to securities issued by the British government and issued to raise money to bridge the gap between what the government spends and what it earns in tax revenue. Back in 1997, the entire stock of outstanding gilts was £275bn; by October 2010 it had surpassed £1,000bn. Gilts are issued throughout the year by the Debt Management Office and are essentially investment bonds backed by HM Treasury & Customs and considered a very safe investment because the British government has never defaulted on its debts and this security is reflected in the UK’s AAA-rating for its debt. Gilts work in a similar way to bonds and are another variant on fixed-income securities.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.