Home wealth to help fund retirement

Here, Andy James, advice policy manager, Towry comments on the ONS survey on total household wealth…

“The impact of age and location on total household wealth undertaken by the ONS makes for interesting reading. Given that household wealth includes the value of the property that household members are living in, it is unsurprising that the south east comes out as the region with the highest percentage of households with total wealth in excess of £500,000.

“Also, given that for most people it takes time to build up wealth and to clear debt, it is even less surprising that the greatest share of households with high levels of assets comprises the 45-64 and 65+ groupings. The survey does, however, show a fall off in asset levels in the over-65 grouping, which probably indicates the use of assets towards the overall cost of retirement.

“What we are not told from the survey is how much of these household assets are tied up in the property that the household occupies. Certainly for many, it is likely to be the largest asset, and one wonders how many will be forced to downsize or look to some form of equity release to see them through their later years?

“At the other end of the scale, we see that there are 12% of households with assets under £50,000 in the 45-64 age group, and 14% in similar circumstances in the over-65 grouping. London and the North East figure highly in these groupings, which as far as London goes would indicate a sizable divergence in levels of wealth across the capital.

“With annuity rates and other investment returns at all time lows, it is questionable whether those even in the over £500,000 bracket would necessarily have sufficient to see them through a comfortable retirement. At current rates, £500,000 used to purchase an annuity would be unlikely to provide more than £22,000 or so net of taxes, assuming a level income and no spouse protection required. While not leaving someone on the breadline, this is hardly going to put them in the lap of luxury. Therefore those at the other end of the scale may have little to look forward to when their retirement takes place, and may need to work well past the State retirement age if they are able to do so.

“Whatever the overall position members of a household find themselves in as far as wealth goes, the survey does highlight the need to take control of finances at an early stage if at all possible. Definitely they need to be aware of how assets are distributed and also the long term ability of those assets to generate income in later years. This will at least give them an idea of a target for retirement assets. Failure in this area may lead to poor outcomes and retirement with reliance on little more than a State pension and other top-ups.”

Have your say on this story using the comment section below