Midlifers could be hit “twice” by the cost of living crisis. Here’s how

17/06/2022

Last month, you read about how supporting loved ones in retirement could affect your wealth this year. While supporting those you love is extremely important to you, it could also place a strain on your financial circumstances.

Especially during the UK’s cost of living crisis, which saw inflation rise to 9% in May 2022, you might be concerned about how your financial obligations – even those you are happy to perform – could become difficult as prices rise.

A Legal & General study confirms that 40 – 60-year-olds may be hit “twice” by high inflation

A May 2022 study by Legal & General has found that “midlifers”, meaning those aged 40 – 60, could be “hit twice” by the cost of living crisis.

This surprising revelation is due to the fact that, in addition to the personal costs this age group typically has to cover, many midlifers also support others financially.

The study claims that providing for loved ones costs an average of £3,577 a year – and that this figure could rise alongside the cost of living in the UK.

Read on to find out how your personal finances could be affected by high inflation, and how these increases could be compounded with your dependants’ rising costs, too.

3 aspects of your personal finances that could be affected by the cost of living crisis

1. Your mortgage

According to the Legal & General study, the average midlifer has a remaining mortgage debt of approximately £32,000 to £66,000.

In response to rapid inflation, the Bank of England (BoE) raised the base rate to 1.25% in June. As a result, your mortgage repayments could become more expensive this year.

For example, your tracker-rate mortgage repayments will have immediately increased in line with the BoE’s decisions. Similarly, your variable-rate mortgage bills could go up, if your lender decides to pass this rise on to borrowers.

2. Your pension

If you are approaching retirement, you are in a crucial stage of wealth accumulation, so continuing to pay into your pension could be a constructive move. However, you may be finding it more difficult to contribute as the cost of living rises.

Indeed, according to FTAdviser, more than 50% of people are struggling to contribute more than the minimum amount into their pension each month. If you are searching for a strategy that could allow you to increase your pension contributions, contact your financial planner.

If you are already drawing your pension, ensuring your later-life income remains sustainable as costs rise is important.

It could be constructive to work with your financial planner in this instance, to give you the peace of mind that you’re doing all you can to protect your pension from inflation.

3. Your income

Between the ages of 40 and 60 you could be at your highest income level yet, as you continue to strengthen your skills and achieve success in your career.

However, as you may already know, the spending power of your income will be affected by high inflation – with everyday goods increasing in price, your income may not reach as far.

What’s more, Dividend Tax and National Insurance contributions (NICs) were increased by 1.25 percentage points in April 2022. This means that if you take dividends as part of your remuneration, you will pay higher tax on these from now on. Plus, of course, your NICs have risen too.

In addition, following the chancellor’s freezing of key tax allowances until 2026, Citywire reports that the number of higher-rate taxpayers is set to increase by 2.5 million during this parliament.

If you are pushed into a higher tax band by these freezes, compounded with the high cost of living, you could find yourself with a lower level of disposable income than you are accustomed to.

3 ways your dependants’ costs may rise alongside your own

In addition to your personal finances taking a hit this year, as a midlifer, you may have dependants whose costs will also be rising.

Here are some examples of how your dependants’ expenses could increase, and how this may affect you directly.

1. Paying university loans or school fees

A report from The National claims some day schools are increasing their fees by up to 7% this year, while the average cost of boarding school is fast approaching £50,000 a year.

While a 7% increase does not quite match the UK’s 9% inflation rate, this could still add hundreds of pounds onto your children’s educational costs. If you have multiple children attending private school, these rises could affect you even more noticeably.

Similarly, if you are helping adult children repay student debts, rising interest rates could mean that student loan repayments increase, too.

2. Helping adult children buy their first home

According to iNews, the average house price jumped by £7,400 in May 2022 alone. This price hike reflects a years-long increase in asking prices, which are reported to have risen by more than £55,000 in just two years.

In addition, the BoE’s base rate increase means that interest on mortgage repayments is likely to be higher.

If you have put money aside to help adult children with a deposit, or perhaps you are helping kids pay their current mortgage, you may need to provide additional support to match these price increases.

3. Funding elderly care for parents or grandparents

Research conducted by Laing & Buisson, published by UK Care Guide in May 2022, reveals that the average annual care home fee stands between £27,000 and £39,000. According to this study, UK councils have reported a median care cost increase of 3.6%.

Once again, if you are supporting elderly parents at the moment, it is important to budget for their expenses to rise alongside your own.

We can help you shoulder your financial responsibilities throughout the cost of living crisis

If the cost of living crisis is likely to have a “double whammy” effect on your finances, you don’t have to bear this extra responsibility alone.

Your financial planner can review your circumstances, helping you to strike a balance between remaining financially viable on a personal level while still supporting those you love most.

Get in touch

If you want to tackle the rising cost of living and formulate a professionally-approved financial strategy, get in touch. Email info@depledgeswm.com or call 0161 8080200.

Please note

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Your capital is at risk. A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.