Years later, life is not so easy. We have statistics and research showing that many people do not know at what age they expect to retire or even whether they will retire. The number of people without pensions or saving also continues to grow (not just in the UK – in the US the numbers not saving for retirement are equally scary!).
One survey I have followed for a number of years is from Baring Asset Management. It looks at some of these issues and some fairly clear trends have been emerging in the past few years.
The most recent figures
No shocks here – the situation is still deteriorating.
The other key aspect of the Baring research concerns those intending to use their property for their retirement
The survey concludes that the number of people saying they now plan to sell or downsize a property to fund all of their retirement has doubled since last year, rising from 2% to 4% (equivalent to 1.5 million people) and that the number of people saying they are now planning to rent out property to fund all or some of their retirement was also 4%.
“My property is my pension” has been the mantra and shows no signs of disappearing, but I am not sure that this is a reliable retirement strategy.
There are two issues here - downsizing to release capital and investing in buy to let to create a stream of retirement income.
Dealing with the second first, buy to let is a legitimate part of a balanced investment portfolio but perhaps not a basket in which to put all your eggs – there are costs, there are tax implications and there are no guarantees!
Downsizing seems to me more problematical – the concerns are often quoted – particularly that you still need somewhere to live, and the exact numbers - how much equity can you really release, having released it how can it be used to produce an income, and how much will be needed to produce a liveable income (using current annuity rates as a proxy for conversion). The ideal of downsizing to a smaller house by the coast can be thwarted when the smaller house costs more than the one that is to be sold.
I hesitate to generalise but those able to release the highest level of equity are less likely to be those relying solely on their house.
I am sure that news reports of rising house prices and the Bank of England’s announcement that interest rates will remain low will continue to stoke the housing market and make buy to let look attractive.
On the other side of the coin another study in the last few days has suggested that some 500,000 people have sold family heirlooms to help fund their retirement – the average value of the items being £1,309 - either a nice to do or more likely a need to do.
Retirement is changing, longevity means retirement could be as long as a working career but without the salary! We are seeing work patterns change but this must be supplemented by savings. It hasn’t got to be just a pension plan but it must be sufficient and the risks understood. Why not take advantage of the pension tax reliefs while they are there – they might not be for much longer.
Mike Morrison
Head of Platform Marketing
AJ Bell