Two thirds of retirees who rely on savings and investments to fund their retirement have seen their income fall in the last two years. On average, retirees have seen a drop in income of £2,400 a year, according to Investec Wealth & Investment.
It said below-inflation returns from traditionally safe investments such as cash and bonds are mainly responsible for the fall.
The research also shows that nearly six in ten retired people rely on income from savings and investments to supplement their pensions, while over the last two years the majority (58%) of these have tried to boost returns by changing products.
Unfortunately, of those who switched products, half continued to see their income fall or flat-line.
Rowena Houston, senior investment director at Investec Wealth & Investment, said: "The last few years of stockmarket volatility and low interest rates have been particularly unkind to the majority of retired people whose portfolios have been heavily skewed towards safe havens such as cash and government bonds, where returns have failed to keep pace with inflation."
The top three most popular income generating products among the retired are cash ISAs (73%), cash savings accounts (51%), and Premium Bonds (33%) – but all three are generating low returns.
The average rate on an easy access savings account with no bonus was only 0.76%, over 1.5% lower than the current rate of inflation at 2.4%.
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Investec said that, as a result of poor performance hitting retirement incomes, a third of retirees have cut back on food, restaurants, theatre and cinema. A third 33% have stopped taking holidays, 20% are gifting less money to family members, and 14% are spending less on maintaining their home.
Houston said retirees who remain risk-averse but wish to generate more returns from their investments could consider infrastructure funds and property investment trusts. "These asset classes are relatively low risk yet are paying a decent yield of at least 5%," she said.