The chances are that you know someone who’s said that tapping into the value of their home is their best chance of enjoying a good lifestyle in retirement. It could be that you share this opinion yourself. It’s certainly not a rare point of view among homeowners aged 45 and over – especially the younger people in this age group – as Aviva’s latest retirement report seems to show:
Almost half (46%) of over-45 homeowners – equivalent to 6.08million UK households¹ – see the wealth built up in their property as a key part of their retirement income plans, rising to 58% among the youngest age group asked (45-54s).
It’s not surprising that so many people think this way. Especially not when you consider the report’s finding that nearly seven out of ten (69%) over-45 homeowners believe their property is worth more than their pensions, savings and investments put together.
But this doesn’t mean that people who have plenty of equity in their homes should look on this as the ‘be all and end all’ when it comes to funding their retirement. There are a lot of potential expenses to consider beyond the day-to-day expenditure. Right now, you may not think it necessary to consider additional saving or investing alongside owning a property – but here’s some food for thought about potential demands on your money in the years ahead...
Giving the kids a foot up onto the property ladder
Crucially, not everyone’s property wealth can be solely devoted to supporting their future lifestyle. Many of us will be all too aware how hard it can be for younger generations to buy their first home. Aviva’s report found that 31% of over-45 homeowners plan to give – or have already given – money to help a child buy a home. And an even larger proportion (43%) believes that younger relatives will never be able to own a home without family help. A large number of today’s retirees – as well as people still a long way off retirement – will view providing this help as a priority.
There are other potential demands, too. Aviva’s report found that 56% expect that property wealth will be needed to pay for care in later life.
In the pink, in the black… or in the red?
Another consideration to bear in mind is the simple fact that not everyone manages to pay off their mortgage before they pass the age of 65. One in three (33%) mortgaged over-45s do not expect to pay off their loans before this age, while a further 17% say that they don’t know when they will become mortgage free. Another 4% think they will never pay off their mortgage: equivalent to 177,101 UK households.
Who knows how you’ll feel at the time?
There’s something else that anyone who is thinking about basing their future income on their home might want to think about. Though downsizing isn’t the only option for releasing value from your home, it’s probably the most straightforward way to do so. But when the time comes, deciding whether to make a move may be a harder call than it seems for those of us whose retirement is still some way off.
Many of us develop a strong attachment to our homes. We all remember buying that first ‘place of our own’. But since then, the average over-45 homeowner has owned just two subsequent properties and has lived in their current home for 21 years. Plenty of time to get attached.
Asked about their plans for retirement, four in five (80%) want to remain living in their home for as long as they are physically able to. In comparison, only 26% have either downsized already, or plan to do so in the future. Making the move may be more difficult than we think.
A balanced solution?
Given all of this, it’s important to look at your financial planning as a whole. Your house, like your pension, may eventually play a major role in helping you enjoy the lifestyle you want. But you may want to consider other ways to ‘top up’ for the plans you’re making for your future, to include provision for expenses which may come before you’ve finished working. The value of investments can go down as well as up and you may get back less than is put in.
Whether we’re looking at property, pensions, or savings and investment, it’s true to say that there’s no ‘one size fits all’ solution for retirement planning. You may find that combining more than one option helps you to look forward to the future with greater confidence.
This said, it's easy to get confused when you're thinking about the different options you have for your money. Whatever stage your planning has reached, Aviva can help you find your way forward. Visit the I’m saving for my future section of our website to find out more.