Can You Count on Property Wealth During Retirement?

Preparing for retirement has grown more complex. As increased pension freedoms settle in, UK workers face a number of looming questions about their retirement finances. Some of the savings and pension strategies adopted by their parents and grandparents are no longer viable for members of subsequent generations, so young people are weighing alternative approaches to retirement planning.

Owning a house has several advantages. Among them, property owners could once bank on their home’s value during retirement, tapping their equity pot or selling outright to generate cash flow in their golden years. With all of the economic changes impacting property wealth, and more to come, is it still possible for British home owners to rely on their houses to generate retirement income?

A Few Things May Work Against You

Buying a home at a young age proves beneficial, because the property’s value has time to appreciate, during the period of time you own it. Rising prices have helped British owners build equity, particularly those who’ve been on the property ladder for many years. If you’re in your 50’s or 60’s, with retirement approaching, your house’s increased value presents an attractive source for retirement cash.

Unfortunately, a few things may be working against you, preventing you from banking on property wealth during retirement.

Effective retirement planning assesses your projected expenses and accounts for them with adequate post-retirement income. Strong pensions once enjoyed by the UK labor force left pensioners with ample resources for comfortable living. This isn’t always the case for today’s would-be retirees, who no longer enjoy the generous pensions that protected past generations. Out of necessity, modern workers approaching pension age are exploring supplemental income opportunities, to stretch their retirement resources.

As they seek solutions, many would-be pensioners see their property wealth as a monetary reservoir, which can be tapped for its equity or sold for a profit. Some pensioners also look to their houses for help investing in buy-to-let. However, house prices have stagnated in some areas, and there’s no telling what might happen in the housing market before you reach pension age.

Tax issues can also interfere with your post-retirement prosperity, particularly strict new tax policies affecting buy-to-let schemes. These aren’t the only things to consider when evaluating your home’s potential to provide for you after you leave the work force. Stiff stamp duty charges are another financial concern, which may interfere with property wealth. And if you do decide to downsize, rising interest rates can sour your plans for a lower monthly payment and lump-sum profit from the sale of your home.

Retirement Realities Spark Concern

According to recent polling conducted by mutual society, OneFamily, nearly four-million Britons plan to raid their property wealth for supplemental retirement income. Of those responding, three of four indicated their pensions would not be sufficient to cover costs after leaving their jobs. If your retirement outlook relies heavily on the value of your house, it’s important to plan for contingencies.

As long as you’re employed, these lenders quickly fund short-term loans – even if your credit is less-than-perfect. Once you’ve stepped away from your job, however, you can’t use your paycheck to guarantee fast financing. In that case, money held in your home may be your only place to turn for funding. Since house values have appreciated 300 per cent during the last 25 years, many owners are sitting on substantial equity. Equity release schemes enable pensioners to tap these reserves when money’s needed.

Each case is unique, so professional planning advice can help you sort out the details. It’s important to remember your property wealth is only one piece of your financial profile. Comprehensive retirement planning considers all the factors influencing your post-retirement finances, arriving at the best possible solutions for your individual circumstances. Though you may still be able to count on house equity to supplement your pension, tax changes and other monetary policies may have an impact. To make the most of your resources, evaluate your pension and retirement investments as often as possible and seek timely advice about using property wealth to your best advantage.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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