Report: How can housing support retirement?
on Sep 16 in My house is my pension, Near retirement, Other assets enough, Reality Check, Retired tagged by Brian WoodThe Pensions Policy Institute have just published a report – “Retirement income and assets: how can housing support retirement?”. The short answer is: “only a bit”.
We discuss this in Myth 5: “My house is my pension” in chapter 3 of the book. Although housing assets are actually larger than pension assets for the average household in the UK, this is a bit of an illusion because you can’t turn all your housing assets into extra income – you have got to live somewhere.
The most useful conclusions of the research are that:
- The main positive impact that housing has on retirement is that your costs can go down because you have paid off your mortgage. This can reduce living costs by 30% for a single person and 40% for a married couple.
- You might be able to release some of your equity by moving to a smaller house or buying a special “equity release” financial product – but both options have costs attached.
- Because you can only release a proportion of your equity and pensions are quite expensive to buy, it’s best to think of equity release as a way of boosting cash for immediate requirements rather than for increasing your pension.
- As you would expect, the distribution of housing wealth is uneven, and many people in retirement have low value homes that can’t really generate much at all in terms of releasing equity.
The report discusses other issues like using housing equity to fund the possible costs of disability, and extracting more value from property by renting rooms or investing in a second property. You can download a copy from http://tinyurl.com/ntayuz .
Our approach, which is hinted at several times in the report, is that it’s probably better to take a wider view rather than focus on the value of your house as some sort of magic bullet. You can’t separate your housing assets from your lifestyle, because you need to live somewhere. So you need to think about your expected lifestyle in retirement and plan for it, while taking housing issues into account.
Look for as many ways as you can to reduce your pension gap. If you conclude that releasing some house equity now is the best option, that’s fine (but make sure you get advice on equity release plans). If you can keep some of your house equity stashed away for future emergency use, then so much the better.
There are no comments yet, add one below.