Why Property is an Essential Part of the Retirement-Planning Jigsaw
Today I’m sharing some thoughts about the role of property in retirement planning. The post is partly inspired by recent research and insight from retirement planning specialists Just.
In association with Opinium Research, Just surveyed 4,000 adults from all over the UK to discover what they think and feel about property, including their views on owning versus renting, how property affects their attitude to their current and long-term financial plans, whether they thought of their property as a home or an investment, what impact property ownership has across the generations, and more.
When looking at those in their 50s, the research revealed that this age group turned out to be (in some respects anyway) the most pessimistic age group.
Table of Contents
Survey Results
The survey threw up some interesting – and in some cases concerning – findings for the 50s age group. Key points arising included the following:
- Whilst those in their 50s are building up towards retirement, half (47%) feel unprepared and hit a ‘pessimistic peak’.
- Among homeowners who don’t feel prepared – not having enough to retire on (52%) and not having enough to do what they want (45%) is the biggest concern. Ranking these above other concerns such as debt and handing down wealth to their children.
- 1 in 4 (23%) don’t know how to fund long term goals. And this goes up to almost half of renters (43%), compared to 16% of homeowners
- It has become noticeably more difficult to get on the housing ladder – and this affects over a quarter (26%) of people in their 50s, who are still renting.
- The impact on retirement is one of the biggest concerns for those now unable to buy, as property remains a core component of household wealth.
- Even those on the property ladder are struggling to juggle their priorities and plan for the future.
You can see more information about the survey, and other findings from it, on Just’s My Home My Future website.
My Thoughts
At the age of 63 I am a little older than this age group, but I can definitely relate to these findings, both in respect of my own experiences and those of friends and relatives.
I believe that property should play an important – and arguably essential – role in every person’s retirement plans. And owning your own property puts you in a far stronger financial position than if you are renting.
One obvious reason for this is that your property can be a source of extra money if and when you need it in retirement. This can work in a variety of ways…
- If you own your property and have equity in it (i.e. its value its greater than any outstanding mortgage/s) you can release some of this by downsizing. By selling up and moving somewhere smaller and cheaper, you may be able to release a chunk of cash that can be used to fund major purchases and/or invested to provide you with extra income.
- If you don’t want to move, you may be able to use equity release to access some of the money tied up in your home. At one time equity release had a slightly dubious reputation due to the risk of going into negative equity, but nearly all lenders now offer a No Negative Equity Guarantee (NNEG) which ensures a borrower can never owe more than the value of their home. Equity release is nowadays a well accepted – and increasingly popular – method for releasing funds tied up in a property. Modern ‘lifetime mortgages’ in particular offer great flexibility for drawing down funds when you need them, with repayment only required when you die or go into long-term care.
- Another option for generating income from your home is to rent a room in it. Under the government’s Rent a Room scheme you can charge up to £7,500 a year in rental without having to pay tax on it. This can work well for people in family homes whose children have flown the nest.
- Owning a property also presents other opportunities to generate money from it. An example is renting out your driveway or garage, which I discussed a while ago in this blog post.
For more information on using your property for money, check out this page from the Just website.
My Circumstances
I am fortunate in that I own my home outright. The mortgage I took out with my late partner Jayne was paid off around ten years ago with the aid of a modest windfall. I also have various pensions and investments.
No-one can see what the future holds, but knowing that I could potentially release a substantial sum from my home if the need arises is obviously reassuring – especially in case in my old age I have to go into long-term care.
The latter is obviously a major concern for many older people. A recent report from Just revealed that 88% of people who have organised long-term care for a family member said they were shocked at how expensive care is, and 75% were surprised by how little financial support the state provides.
Further Thoughts
One thing that struck me particularly in Just’s My Home, My Future survey was the number of middle-aged (and older) people who are still renting, often through necessity rather than choice. Just found that non-homeowners in their 50s tend to be those who haven’t been able to buy their home (43%) rather than those who haven’t chosen to buy (21%).
This is clearly a concern for those affected, and for society generally. These people will be cut off from an important potential source of income in later life. If they have to go into long-term care, much of the (considerable) cost may have to be borne by their family, who may or may not have the means to do so.
A serious discussion needs to take place about how social care in Britain is funded, and specifically the balance between what is paid by the state and by the individual. Government policy in this area has been mired in confusion for years – and with the current political turmoil over Brexit it’s hard to see the situation improving any time soon.
In the meantime, it’s clearly desirable for everyone to get on the property ladder as early as they possibly can, so they are able to build up equity in their home and access the additional cash and income property can provide in later life. Whilst it remains unclear how much any of us will need to contribute to the cost of our own care, having a source of money to fund this if needed is all the more vital.
As always, if you have any comments or questions about this post, please do leave them below. I would especially like to hear your thoughts if you are 50 or over on how you plan to fund your retirement and the role you see for property in this. Check out also the #MyHomeMyFuture hashtag for more about this subject on social media.
- For further advice on planning for retirement, I recommend checking out the government’s Pension Wise website, which includes detailed information about pension saving. If you are over 50 you can also book a free telephone or face-to-face appointment with an adviser who will go through the options with you.
Disclosure: This is a sponsored post on behalf of Just Group plc.
August 24, 2019 @ 7:23 pm
That survey is really revealing and not what I was expecting. Worrying that so many in my age group don’t know how to fund their long term goals ergo, they aren’t doing so right now. No-one wants to be working past state retirement age so we really need to be focusing on retirement much earlier in life. I know auto enrollment is a step in the right direction but obvious much more needs to be done.
August 24, 2019 @ 8:21 pm
Thanks for your comment, Tuppenny. Yes, the findings are eye-opening, aren’t they? I agree everyone needs to start planning as early as possible for their retirement. Getting on the property ladder is highly desirable, as is saving as much as possible into a pension.
August 26, 2019 @ 8:00 am
Hi Nick,
A really interesting read. I started work at 21 and have paid into pensions all my working life. I know lots of people who are still renting at my age but I felt buying a property was an important part of my financial journey and future.
An interesting discussion between me and my chums is whether it was better to have ‘normal’ pensions or property. A builder friend has no pensions but has ploughed his money into property/land to build properties.
When you compare his ‘portfolio’ with other people’s pension pots, he is certainly ahead, however his knowledge/skills/contacts have meant he could build cheaper than you or I. I also think that the days of 18 year olds buying ANY property (down south at least) are long gone. Most people are unable to get even ‘fixer-uppers’ so its so much harder to even get on the property ladder.
I echo your suggestion on rent a room scheme and have used this myself to get some great tax-free income.
Thanks,
The Reverend
August 26, 2019 @ 8:48 am
Thank you for your comments, Reverend. I’m sure you’re right about it being harder for young people to get on the property ladder now, especially in the south of England. I have read that the government may be reducing stamp duty for first time buyers in the autumn budget. That will help if it happens, though of course it’s not the whole solution. As I said in the article, I am very glad (and fortunate) to be in the position of owning my own home without a mortgage, as this could provide a valuable source of income if/when the needs arises in later life.
August 27, 2019 @ 4:16 pm
I would worry about still renting so close to (hopefully) retirement. We really focused on trying to avoid a massive mortgage, and then were lucky enough to clear our mortgage, thanks to soaring house prices and moving to a cheaper area. Ideal world I think it’s important to fund retirement from a variety of sources, so we’ll be relying on a combination of pensions, ISAs and buy to let income.
August 27, 2019 @ 5:42 pm
Thanks, Faith. Yes, ideally I’m all in favour of having a broad portfolio of savings, investments and property to fund your retirement.
August 27, 2019 @ 5:24 pm
I agree that property can play an important part in a retirement plan but I don’t think it has to. You can as well invest in an index tracker. Houses have the advantage that you’ve got something physical but also ties you down to the location. I imagine that is not so much a problem for older people right now but for mine and future generations, flexibility may be more important
August 27, 2019 @ 5:39 pm
Thanks, Jennifer. It’s true that property isn’t as liquid an asset as – say – a tracker fund ISA. But modern lifetime mortgages do give you the opportunity to withdraw an income (or capital) from your property as required, with no repayment due until you die or go into long-term care. With equity release interest rates currently at an all-time low, this may present a good option for many older people if the need for extra money arises in later life. In any event, it’s good to know that this source of cash is available if required.
August 27, 2019 @ 5:27 pm
Struck – and surprised – that so many people in their fifties are still renting. That must put them at a considerable disadvantage as they approach retirement.
August 27, 2019 @ 5:32 pm
Thanks, Claire. Yes, I’m very glad not to be in that position myself!
August 27, 2019 @ 6:08 pm
Interesting post, there’s also alot of people who, due to divorces and second marriages started again at 40 so now are in their 50s with a huge mortgages into our 70s. Wonder if the mortgage will be taken into account if we need care. We were in this situation with my dad, the council tried to charge us £800 a week and would have basically let it build up and take it off the house value. Thankfully dad had already taken advice and this was (after considerable battles ) avoided. My Sister however rents, is not in a position to buy, worrying she has no plan for retirement. Good to know there is impartial advice available. Many thanks, Tracy
August 27, 2019 @ 7:02 pm
Thanks, Tracy. Yes, whether we will need to go into care (and the cost if we do) is probably the biggest ‘known unknown’ any of us will have to cope with in our lives. The government really needs to provide more clarity about this issue, which is constantly being kicked down the road.
August 27, 2019 @ 6:43 pm
Wow – I can’t believe that over a quarter of people in their fifties are still renting. Must be soul destroying. I’m definitely going to drill it in to my kids how important it is to get on the housing ladder.
August 27, 2019 @ 7:05 pm
Thanks, Jim. Yes, absolutely!
August 27, 2019 @ 8:18 pm
That’s interesting. We are finding that we want to pay our mortgage off ASAP but not keen to invest in property beyond the home we live in. With the extra stamp duty and taxes it isn’t for us.
August 27, 2019 @ 8:41 pm
Thanks, Emma. Yes, buy-to-let has lost some of its appeal in recent years for the reasons you state. I strongly advocate buying rather than renting because of the many advantages of owning a home as you get older. But whether to invest in other properties as well is a more difficult call. Personally I prefer to put my money into equity-based investments (e.g. my Nutmeg ISA), although I do have some money in debt and property crowdfunding platforms as well. Diversification is the key!
August 28, 2019 @ 12:33 pm
Really interesting article. I would say that as you get closer to retirement age, owning your own property outright (with no mortgage) gives you security and flexibility (to an extent as the asset isn’t as liquid). But I would also say that there is a pressure on young people to switch from renting to owning as soon as they can afford to.
We’re all told of the advantages of getting on the housing ladder. But if you’re young, there are huge benefits to renting too. Flexibility in location, allowing you greater career flexibility. You don’t have to worry about house maintenance and emergency repairs.
There’s also an opportunity cost in a downpayment. The downpayment is not only tied up in the property, but whilst you save for the downpayment (possibly for years) it’s likely sitting in a low wielding savings account. If you knew you were renting for 10 years, you could invest in an asset more likely to produce greater returns, like an equity index fund portfolio. There’s the danger that when young people buy, their whole asset portfolio becomes skewed to, not only real estate, but a single property investment.
August 28, 2019 @ 4:36 pm
Thanks, Andrew. You make some very interesting points. I do agree that for young people there are advantages to renting rather than buying – in particular, the flexibility it allows you to live and work in different parts of the country (or even different countries) as you pursue your career.
I’m less persuaded by the investment argument, although I do see where you are coming from. The fact remains that if you are renting, this is really a large chunk of ‘dead money’ every month that is paying off your landlord’s mortgage or simply lining his pocket. Really, as soon you are reasonably settled, I think it’s desirable to get on the property ladder. That way, you will be building up equity in your home as its value increases while the outstanding mortgage reduces.
August 29, 2019 @ 6:29 am
Gosh I am ensuring my home is paid off by the time I reach older age. Not going to say retirement as I want that word banished, do what you love🥰
August 29, 2019 @ 7:28 am
Thanks, Lynn. Yes, we paid off our mortgage early and never regretted it for a moment. I understand what you say about retirement. I am very happy being semi-retired, but plan to continue doing some work as long as I am able.