If you’re a young person, then you may feel that renting has a lot of positives over buying a property. When you rent, you have flexibility and you don’t have to raise a massive deposit to move, or deal with any of the complexities that come with house ownership. But as we get older, does renting have the same perks? As you prepare for retirement, this is something you have to consider.
Renting as a retiree
You may think that renting as a retiree would be cheaper, but that’s not necessarily the case. Your monthly fixed costs will be much higher as a retiree that rents. Retired renters could end up spending up to a third of their income on rent, so you will need to work even harder to build enough money in your pension pot to cover the cost.
In some parts of the UK, rents are so high that it may not be feasible to save enough to cover the cost. If you can’t save enough, you may have to downsize or move to a cheaper area when you retire, to cut your living expenses. This also means that retiring as a renter comes with extra complexities; you might not be able to afford to just stay where you’ve always lived.
You may, of course, decide to do something completely different. House sharing in your sixties, for example, is something which some are exploring!
Pressures on your pension
To build a large enough pension pot means contributing more each month, investing the pension so that it works harder, working later in life, or a combination of all three. It means your retirement could be much shorter than you’d planned.
We should all have 1-3 years’ worth of essential spending in an easy access savings account. If you’re paying the rent, your essentials will be much more expensive, so it’s important to plan ahead for a larger safety net.
One common approach to building an emergency fund for retirement is to use your pension lump sum, but if you need to pay rent in retirement, you may not be able to afford to take the lump sum, because it will reduce your monthly income.
Is home ownership a possibility?
Even if renting as a young person has worked well for you, you may want to consider buying a property so that you are more secure in your retirement.
To determine if you can afford to buy, you need to get your figures listed and run some simple calculations. That way, you’ll have a clearer idea if buying a home is an affordable option for you.
Choices with care
If you’re renting and you need to pay for care, you cannot tap into the equity in your home. And while it may mean the local authority covers the cost of care, it dramatically reduces the amount of choice you have in the process.
As a renter, you can’t gradually adapt your home as your needs change either. That means that if your mobility changes, you may well need to move house.
If you want to have assets to leave to your loved ones, without the family home to pass on, you would need to have other savings or investments. You also have to accept the insecurity of renting, which means you may have to move when it doesn’t suit you.
There are definitely pros and cons to both renting and owning a property. Generally speaking, house ownership seems much simpler for retirees. If you’re unsure about your options, then The Citizens Advice Bureau can help.
Note: this is a paid collaboration.