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Renting in retirement – is it feasible?

Article1JanuaryThe simple answer to the question is that, yes, it can be – since many people in retirement are renting the home in which they live.

What’s more, the number of retirees renting their homes is on the increase. According to a story in the Telegraph newspaper on the 18th of July 2017, the proportion of all people in rented accommodation who are retired is now almost 20% of the total – a rise of 3 percentage points in the past year alone.

Reasons for renting

Naturally, there are many reasons why people may be renting when they reach retirement age:

  • the most obvious, perhaps, is that they have never had the financial wherewithal to get an initial foot on the housing ladder – and by the time they retire, it is quite simply too late to begin and impossible to secure a mortgage;
  • according to a report by the BBC on the 3rd of December, the number of people in the private rented sector is set to climb to more than nine million;
  • it is not only force of circumstance, but there are also people who consciously choose to sell up a home they once owned and move into rented accommodation when they retire;
  • in various interviews with the media, some of the reasons given include the sale of a once-owned home that has become too expensive to maintain – especially following the death of a spouse, when the upkeep of a house becomes too much for one person to afford;
  • by switching to rented accommodation, the older tenant might feel relieved to hand over all maintenance issues to the landlord;
  • still others approach retirement with the realisation that they have made inadequate pension arrangements in preparation for many years in retirement;
  • at such a relatively late stage in their lives, therefore, they may have little option but to sell the home they have owned to release the capital which may be used to provide the necessary top-up of a regular income.

Benefits of owning your home

The overwhelming benefit of owning your own home is that there is no rent at all to pay – although you have the ongoing expense of insuring and maintaining the building.

Renting can eat up a large portion of your pension income if you haven’t made adequate provision – as the case study cited by the BBC news article (mentioned above) shows:

  • a former homeowner chose to release his equity in the house to supplement his inadequate pension fund – he was expecting a pension income of approximately £1,000, yet private rented accommodation was going to cost some £700 a month (70% of his income);
  • alarmingly, that figure of 70% might not be so unusual, especially in London, where the Telegraph article suggests that the average retiree living in the capital already needs to spend 66% on rent and that, within 15 years, that percentage is likely to have risen to 80%;
  • as with most housing statistics, of course, London prices remain something of an anomaly – with many population groups, including the retired, already priced out of the market;
  • the cost of renting is typically a much lower proportion of a retiree’s income in the east of England (45%), the southeast (39%), the northeast (25%) and Wales (24%);
  • nevertheless, by the year 2032, if you are retired and do not own your home, you are likely to see an average of 42% of your income spent on rent warns The Telegraph.

Equity release

If you own your home, you may also have the option of supplementing your pension pot, without losing somewhere to live (effectively rent-free) by arranging equity release.

Whether you choose to effect that equity release through a lifetime mortgage or a home reversion plan, this may provide the extra funding for any shortfall in your pension income and the money to repair and maintain your home.

Equity release is not to be taken lightly, however, especially because of its likely impact on the expectations of your heirs and successors – so, independent financial advice is almost certain to be needed before committing to such a plan.

The feasibility of renting

So, the experience of millions of retirees suggests that renting is certainly a feasible way of providing accommodation in your later years.

But it is likely to come at some considerable cost – the average person having to spend at least 42% of their retirement income in rent (although the actual amount may vary quite widely from one region of the country to another).

Although there may be pros and cons involved in renting your home, owning it, or using it to arrange equity release, one message rings loud and clear. That is the sooner you organise and plan your financial arrangements for your retirement, the broader your options are going to be – and, here at Independent Pension Specialists Limited (IPSL), that is precisely the help we are equipped and able to provide.

The data used in this article is correct at the time of writing.

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