When we think of “generation rent”, we think of people in their 20s and 30s struggling to get onto the property ladder. This is especially true in London and the South East, where we all know that those on an “ordinary salary” will struggle to get onto the property ladder without the help of Bank of Mum & Dad.
Property purchase for many is simply unrealistic today. In a change of mindset from say 20 years ago, renting has become much more acceptable, especially for young people. There is no longer a stigma attached to renting and rightly so. After all, many people in Europe rent property for their entire lifetime. Announce however that you are over forty and renting and your announcement might be met with frowns of concern. Over fifty and renting? OMG! Really? Over sixty and renting? Gulp! Which leads onto possibly the most alarming of circumstances; renting in retirement; something rarely talked about in the UK – the land of property ownership.
Taken for granted:
When discussing retirement income requirements with our clients, we, as financial advisers, often assume that the mortgage would have been paid off by the time the client is ready to stop working. Consequently, cashflow calculations need not include mortgage or rent payments. We concentrate on income requirements to cover things like food, clothing, eating out, utilities, council tax, and holidays.
But what about clients who simply never made it onto the property ladder? How would they plan for retirement? Granted, the couple in the picture don’t look worried at all, but that’s because they have paid off their mortgage and are enjoying retirement. Others may not be so lucky.
For those who love statistics, Scottish Widows conducted an independent report on this very topic.
The research, concluded in October 2017 shows that:
- In 15 years’ time, one in eight retirees will live in rented accommodation.
- During retirement 42% of the average retirement income will go out in rent.
- Those over 50s renters face a £43 billion shortfall in pension savings.
- To fund this shortfall, the average renter will need to save an additional £525 every month on top of their current pension contributions.
- The alternative would be to work for another 5.1 years to cover the cost of renting in retirement.
Rent-irement – a new word, and a ticking time-bomb
With the common perception being that retirees will own their home outright or have a council tenancy, the government will be in for a nasty shock as more of us retire and continue to rent from a private landlord. It is however important that the financial implications of paying rent into retirement are fully understood.
Those facing rent in retirement in London could be completely pushed out of the City by 2032. If any of the above applies to you, whether you are young or slightly older, the time to plan is now. Speak to an independent financial adviser who can help you with cashflow planning. This will show you the potential shortfall in income in retirement and the sacrifices you’ll have to make now to ensure that you aren’t on the breadline when you get older.
Generation rent no longer applies to just the young. It is time for a change of mindset; if you need a rethink, don’t wait until you’re older when it would be too late.