Elderly renters face a £2,000 financial disadvantage compared to homeowners, highlighting the potential perils of renting during retirement.
Renting in Retirement: A Financial Risk worth Considering
Retirees renting accommodation may find themselves struggling with a lower retirement income compared to their home-owning counterparts, according to the latest research from Barnett Waddingham. The financial implication of this disparity could be significant, particularly as more people over the age of 50 continue to rent due to soaring property prices.
The consultancy's At-Retirement Report highlights the financial risks associated with being a tenant during retirement. Renters generally have higher expenses, which in turn limits their ability to save adequately for their retirement. This could lead to a substantial shortfall in retirement income for renters.
While renting may offer flexibility and help some individuals avoid the high costs of homeownership, the report emphasizes that the mortgage repayment requirement is typically satisfied before retirement. In contrast, renting provides an ongoing expense that can even increase over time.
According to Barnett Waddingham's analysis, homeowners can expect an annual retirement income of around £21,000, while renters are expected to receive £19,000 – a difference of £2,000 per year. Although around two-thirds of both homeowners and renters believe they can afford their housing costs, a third of renters anticipate that their housing expenses will rise during retirement, causing further concern.
Homeowners are generally found to be more financially engaged and are better equipped to plan for their retirement, but this might not be the case for tenants, who may need an additional £400,000 in their pension savings to keep up with escalating rents, according to data from Standard Life.
Paul Leandro, a partner at Barnett Waddingham, commented on the issue, saying, "Renters face dual challenges of lower confidence, limited engagement with retirement planning, and considerably worse financial situations when compared to homeowners."
Leandro also suggested that policymakers consider creating a framework that allows people to save tax-efficiently for a house deposit, as well as for retirement income. Alternatively, he proposed exploring structural solutions such as home equity release, which could help integrate housing into the retirement framework.
Although renting offers benefits such as reduced maintenance responsibilities and more flexibility, it is essential to factor in the ongoing monthly expense and potential rent increases into retirement income planning. Renters should also aim to increase their financial literacy and engagement with retirement planning to mitigate the risks associated with this housing choice.
- To tackle the financial risks of renting during retirement, renters might consider subscribing to a personal finance newsletter to stay informed about strategies for saving adequately for retirement.
- Adequate personal-finance management and understanding of investments, such as gold or real-estate, could potentially help renters build their savings more effectively.
- In light of the financial analysis, those planning for retirement may want to consider the implications of both renting and homeownership on their pensions and overall financial stability.
- As renters face a significant shortfall in retirement income, they might need to reconsider their approach to personal finance, such as increasing their savings rate and diversifying their investments.
- The housing-market trends and potential rental increases should be an integral part of one's personal-finance planning. Considering these factors could help renters make informed decisions about their housing options and retirement planning.
