Renting during retirement

There has been a traditional preconception that renting is for the young.

However, attitudes are shifting and, as home ownership slips beyond the reach of more and more individuals due to the dramatically increasing gap between salaries and house prices, so the number of people who are renting in retirement is also going up.

For this population, making sure they can still cover their rent is a crucial priority for their financial planning as they look to their future. 

In this article, our expert team at PIL Southampton explores this area, looking at how renters can make it work in retirement, and comparing home ownership to renting in your later years.

 

Who is most likely to be affected by rental costs in retirement? 

Location is a significant factor regarding who is most likely to be affected by rental costs. Retired people renting in London and the South East are going to have the toughest job making sure they are covering their housing costs; rent is that much higher. Those living elsewhere, say in the North East, are likely to face lower rental costs so it might be less of a financial strain for them. 

Aside from where you are based in the UK, those on the lowest incomes in retirement are more likely to rent than those on higher incomes. Wherever you live, it could be challenging for retired renters to cover their rent and maintain even a basic standard of living in retirement.

 

How will renters cope in retirement? 

When they stop working, many retirees will be hoping to rely on housing benefit to pay their rent and will often be looking to downsize to a smaller and cheaper rental property, in a lower cost area, to reduce the amount of rent they must pay.

Individuals heading into retirement will also be looking for ways to save money. Measures can range from cutting back on holidays and dining out to more drastic measures like not putting the heating on.

For some, however much they cut back, and however low their rent is, they may still not be able to afford to cover their rent, and becoming homeless is a worrying concern.

 

Will homeowners be better off in retirement than renters? 

Current estimates are that around two thirds of people own their own home when they reach retirement. 

If they are mortgage free at this time, they will be released from the burden of paying a significant monthly sum in mortgage payments nor will they have rental payments to make. They will also have the potential of releasing a lump sum through equity release.

 

Retirement expectations vs reality 

Whilst some individuals will have been preparing for years, for a considerable proportion of retirees it will not have been possible to make financial provision to cover their income in retirement needs.

The introduction of automatic enrolment, where employers are legally obligated to contribute to workplace pensions, will have a significant, positive impact on the younger generation’s expected retirement income. Not only will individuals currently in their 30s reap the benefits of their employers’ contributions, but it also encourages good savings habits from the individuals who also contribute to their workplace pension. 

Self-employed individuals don’t get the benefit of a workplace place pension. 

Although it is prudent for them to invest in a personal pension for many reasons, they either don’t have the means to, or don’t make enough provision to meet the gap between their expected retirement living costs and their predicted retirement income. 

Workplace pensions and personal pensions can effectively supplement the state pension. 

Regarding the state pension, it is worth checking that you are on track to receive the full state pension by the time you retire. Receiving the full state pension depends on paying enough National Insurance contributions throughout your adult life. You can check your own status on the government’s website here.

You may also be able to top up your retirement income from other sources, like savings or inheritance or, if you are a homeowner, from equity release.

 

Pros of retirement renting 

Renting can be more flexible than home ownership, giving you the option to move around more freely, for example if you choose to live closer to your children and grandchildren. 

Some homeowners choose to sell up and rent, if they have a large amount of equity to fund their rent and their retirement lifestyle.

Homeowning can also come with maintenance issues and unexpected costs like roof repairs or replacing a boiler. Renting means that these often time-consuming and expensive scenarios are your landlord’s responsibility, not yours.  

You could choose to rent in a complex with amenities like a concierge service, a swimming pool, or a rooftop terrace. It is, however, important to factor higher annual service charges into your budgeting for extra amenities like this.

There are many warden-assisted retirement living options you can choose to rent in, keeping your independence but giving you the peace of mind that onsite support provides, as well as the opportunity to enjoy the social aspect of catching up with your neighbours in communal areas.

 

Cons of renting in retirement 

There is an unpredictability in budgeting when you’re renting, as you never know when your landlord may increase your rent. 

You are also vulnerable to being asked to leave your home at the end of your tenancy if your landlord changes their mind about renting their property.

Another big downside for many people about renting, is the ‘dead money’ aspect. Your monthly rental payments are going into your landlord’s pocket, not yours, so you are not investing in your own financial future.

Also, if you have a beloved pet and you are looking to rent, your options could be limited as many landlords are reluctant to rent to people with pets. There is some good news though – recent new rules in standard tenancy agreements should allow responsible tenants with well-behaved pets to secure leases more easily than they could before.

 

How can we improve retirement outcomes for renters?

Helping people to properly prepare for their retirement is certainly a challenge.

We all know that the earlier we start saving for retirement the better. However, that’s easier said than done when many people are living hand to mouth and struggling to make ends meet day-to-day, let alone having any money left over at the end of the month to save towards their retirement.

The government is being lobbied about increasing the amount of affordable housing being built. This would free up housing provision and enable more people to get on the property ladder; owning rather than renting gives people the opportunity to build equity in their property which can then supplement their retirement, or to pay off their mortgage and not have a mortgage or rent to pay once they have retired at all.

The other action the government is being urged to take is to enhance automatic enrolment pension contributions to help support living standards in retirement, both by lowering the threshold from £10,000 (as at time of writing) so that lower earners can also benefit, and by incrementally raising contributions to 12%, whilst encouraging those who are able to increase their contributions.

 

How PIL Southampton can help you 

Our expert team of financial advisers are the ideal people to talk to about your retirement planning options. They have decades of experience in helping people to plan for their future, with the aim of hopefully supporting their preferred standard of living in retirement. They would be delighted to help you too.

 

How you can contact PIL Southampton

You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.