Retiring generation see “Home is Pension”

Only 19% of all over-50s still in work feel that they are financially on track to retire as planned. And the number of working over-50s that believe they may have to delay retirement for financial reasons has increased hugely, to 41% from just 28% this time last year. Homeowners over 50 estimate they have lost £60 billion[2] in property value due to recent volatility in the housing market, with 19% delaying their retirement for this precise reason.

However, this has not put many off using the equity in their homes to help fund their retirement, with nearly a quarter (23%, equivalent to 1.2 million people) of working over-50s considering using some, or all of the equity in their home to fund their retirement. A further 9% will also be taking advice on using their property equity before they retire. In fact, the over-50s believe that the “Home is Pension” mantra is so valuable, 54% would suggest their children follow in their footsteps and recommend property as part of their retirement planning.

When working over-50s were questioned about the impact an interest rate rise would have, LV=’s research found that 40% would have to reduce their pension contributions just to make sure the higher cost of paying debts such as mortgage repayments, credit cards and loans can be met. More than four in ten (44%) of all working over-50s, and 34% of those aged 60-69 in work, have an outstanding mortgage debt on their home, despite many nearing retirement age.

However, on the bright side, almost a third (30%) said that an interest rate increase would have a positive effect on their finances, with the benefit of higher interest on their savings outweighing any negative impact.

Vanessa Owen, LV= Head of Equity Release, said: "It seems to be increasingly commonplace for those approaching retirement to consider using the equity in their property as part of their overall retirement plan. Continuing doom and gloom over volatility in the housing market and seeing some properties fall in value, hasn’t deterred the UK’s "HIPpies" and many are still positive that the equity they have built up over the years in their home is their best chance of having a more comfortable retirement."

Of those planning to use the equity in their home, nearly a quarter (22%) believe this is now their best option because their pension savings won’t give them the income they hoped it would, and 13% say it’s all they have to rely on after the state pension. Two-thirds (64%) of these said they had always planned to use their property for their retirement: 52% by downsizing their home to release equity and 12% to borrow against their home through an equity release product.

Of those that are relying on using their property in retirement, many are taking steps to compensate for the fall in house prices and a shortfall in retirement income:

35% are trying to save extra money wherever they can
27% plan to wait for their property to increase in value again before using it to help fund their retirement
24% are going to make home improvements to help push up the property value
5% will take in a lodger to earn some extra income from their property
Recession double-dipper for over-50s

Many over-50s are experiencing a ‘double whammy’, having seen large amounts wiped off the value of their pensions and investments whilst also being forced to reduce the amount they are setting aside for retirement due to the pressures of living costs during the recession. One in five over-50s (20%) have cut their savings by an average of £137 a month[3], meaning that many more in future may need to cash in on the value of their homes to make up for pension shortfalls.

Previous research from LV= also highlighted the impact of the pre-recession house price boom on pension savings behaviour, among over-50s homeowners now nearing retirement[4]:

One in eight (12%) consciously saved less into their traditional pensions because of the perceived spiraling value of their home

A further 13% say they couldn’t afford to buy their own home AND invest in traditional pensions, because property prices were so high

Vanessa Owen concluded: "While we may have seen the worst of the recession, we can’t fail to ignore the impact the last few years has had on the personal wealth and pension pots of the over-50s. For many, their home is still a big part of their wealth and trading down to a smaller home or using a suitable equity release product may be the only option for them. Anyone considering using their property to fund retirement should seek specialist advice, and should also talk to their family about it. Our research shows that 35% of working over-50s do not intend to discuss their retirement plans with their children, with just 4% having discussed it in detail. Using your property to fund retirement will have an impact on any inheritance left behind, which could cause some surprises down the line for family members if it isn’t discussed."

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