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Don't Count On Your Home As A Pension

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Don't Count On Your Home As A Pension

Homeowners are being warned they face an impoverished retirement if they rely on their property as their sole pension.

Increasing numbers of people claim to be planning to use their home to fund their retirement rather than saving into a fund.

But research by insurer Standard Life shows that, on average, downsizing from the family home to a smaller property during retirement would provide a pension worth just 16% of average earnings.

That is well down on most people's target of two-thirds of their pre-retirement pay.

The group said people could release the most money by downsizing from a detached property to a flat in the same region.

But with the average detached home in the UK worth £343,058, such a move would unlock only £144,000 worth of equity - which would provide an income of just £122 a week once it had been converted into an annuity.

Doing a smaller downsize, such as from a detached home to a bungalow, would free up only £118,000 which would bring in an income of £100 a week.

Meanwhile, moving from a semi-detached property to a flat would free up just £9,863, creating a pension of only £7 a week.

In some cases people could even lose money by trying to downsize - for example, on average people would be £6,434 worse off if they moved from a terraced house to a flat.

Andrew Tully, from Standard Life, said: "Across the UK many people are pinning their hopes on a continuing strong housing market to provide the retirement of their dreams.

"The reality is somewhat different."

Source

So unless you can live on seven pounds a week, I think it is fair to say that your home is unlikely to provide you a decent pension. ;)

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Baby boomers, who began retiring last year in the US and UK, can downsize because the rest of us haev been conned into thinking that property is the best investment. Problem is, with rapidly decreasing birth-rates, who is going to be around to buy our property in 20 or 30 years time?

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Baby boomers, who began retiring last year in the US and UK, can downsize because the rest of us haev been conned into thinking that property is the best investment. Problem is, with rapidly decreasing birth-rates, who is going to be around to buy our property in 20 or 30 years time?

Good point this has a big effect on demand and ought to be taken into consideration when reviewing the long term perfromance of a property market.

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Problem is, with rapidly decreasing birth-rates, who is going to be around to buy our property in 20 or 30 years time?

Housing associations to house the offspring of today's chavs.

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Baby boomers, who began retiring last year in the US and UK, can downsize because the rest of us haev been conned into thinking that property is the best investment. Problem is, with rapidly decreasing birth-rates, who is going to be around to buy our property in 20 or 30 years time?

Whilst I agree the Boomer generation will have an effect on the market, I think it's a little off to say they only started retiring last year - hitting pensionable age, yes, but they've been retiring for years.

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Housing associations to house the offspring of today's chavs.

in 20-30 years? you must refer to their great-grandchildren, looking at which pace they breed.

Commenting on the topic, I never understood the "house as a pension" thing. Won't work unless you get a lodger who pays your living expenses...

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Does not, did not, and never will work ;)

Well, paying off the house means that far less pension income is required, because you don't pay rent. That's about as far as the whole property=pension thing goes as far as I'm concerned.

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So let me see, if my property isn't going to be enough (gasp!) what on earth can I do to provide for my old age...

research by insurer Standard Life shows that, on average, downsizing from the family home to a smaller property during retirement would provide a pension worth just 16% of average earnings.

...could the solution to this conumdrum possibly found among the financial products of Standard Life and its ilk?

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Actually your home can be your pension if you pay it off in full.

The only catch is that you also need to also pay for the home you plan to retire in before you finish work.

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Commenting on the topic, I never understood the "house as a pension" thing. Won't work unless you get a lodger who pays your living expenses...

Works just fine if your manor grounds generate a surplus (rather than the deficit most do). But most people aren't thinking "intergenerationally viable farm or shop" whilst telling you how great it can be to borrow your life away (donating your productivity to those that "help" you do so).

Edited by ParticleMan

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Guest An Bearin Bui
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So unless you can live on seven pounds a week, I think it is fair to say that your home is unlikely to provide you a decent pension. ;)

This "house as pension" concept never made any sense - where I live the most desirable family homes are going for around the 400/500k mark. Two-bedroom flats, however, are selling for 200/300k in the kinds of areas that older people from expensive suburbs would be contented to live in. There are of course some flats around selling for less than 200k but they are generally in shoddy areas or ex-council buildings and I can't see Mr and Mrs Affluent of Morningside being happy to downsize to that extent. So if they have a particularly desirable home and sell up for 500k, they can buy for maybe 250k leaving them with a grand total of 250k for their retirement. If stashed in a savings account that would give them about 12k per year before tax, and that's ignoring any large one-off costs like costs of care, home maintenance etc. It's not exactly a plan for retirement, is it? It might form part of a plan together with investments, traditional pension and other savings but it's not enough to rely on your house alone.

This is just basic maths that anyone can calculate quite easily yet so few people seem to bother. They are just assuming that their house will make them rich, largely because they're too lazy to manage their finances.

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So let me see, if my property isn't going to be enough (gasp!) what on earth can I do to provide for my old age...

...could the solution to this conumdrum possibly found among the financial products of Standard Life and its ilk?

You need FINANCIAL SERVICES, says, er, a large provider of financial services, worried that lots of people don't trust them any more.

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All this highlights to me is what appalling vfm annuities are. Given that you give your capital to the life insurers, you don't seem to get much back. It looks as if you'd be better off sticking it in a savings account and drawing down on the capital over, say 20 years. As you get cash when you sell a house, there's no requirement to buy an annuity, so why would you?

The report fails the MandyRiceDavies test - it's Standard Life making the claim.

Personally I can't see anything wrong with downsizing to create a cash lump sum to supplement your pension. Standard Life are making the reasonable point that you should put all your pension eggs in the property basket, implying that the pension firm basket should take it's place. Well, they would say that wouldn't they?

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My pension provider wrote to me a while back saying they'd taken the £2000 I'd paid them and turned it into £1950. From that £1950 they then subtracted their 1% fee they charge me for losing my money. And then at the end of all this, after a lifetime of fees and blowing my money on dodgy investments, I get to buy an annuity that will leave me poor. And then I'll die young from the stress of it all and lose out again. I'd agree with Standard Life that property is a crap way of saving for your pension, but they fail to point out that pensions are a crap way of saving for your pension as well. They're both crap, but at least you get to live in a really nice house with one of the options.

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They're both crap, but at least you get to live in a really nice house with one of the options.

:lol::lol:

Very true.

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This "house as pension" concept never made any sense - where I live the most desirable family homes are going for around the 400/500k mark. Two-bedroom flats, however, are selling for 200/300k in the kinds of areas that older people from expensive suburbs would be contented to live in. There are of course some flats around selling for less than 200k but they are generally in shoddy areas or ex-council buildings and I can't see Mr and Mrs Affluent of Morningside being happy to downsize to that extent. So if they have a particularly desirable home and sell up for 500k, they can buy for maybe 250k leaving them with a grand total of 250k for their retirement. If stashed in a savings account that would give them about 12k per year before tax, and that's ignoring any large one-off costs like costs of care, home maintenance etc. It's not exactly a plan for retirement, is it? It might form part of a plan together with investments, traditional pension and other savings but it's not enough to rely on your house alone.

This is just basic maths that anyone can calculate quite easily yet so few people seem to bother. They are just assuming that their house will make them rich, largely because they're too lazy to manage their finances.

You've put your finger on a significant feature of the UK housing market. As you go up the housing scale you get increasingly good value for money (or less appalling value for money!). It's why big older houses are so frequently turned into flats, and why flats are so infrequently bought up and turned back into single family houses.

The fact is there's an imbalance in the UK's housing stock, there's relatively more big properties than there are relatively wealthy people to occupy them, so at the higher price levels you just get a lot more for your money. The UK doesn't have a tradition of declaring the square footage of properties, if we did then it'd be plain as a pikestaff that we're paying through the nose for the tiny "starter homes" and studio flats, where as big five bed detached houses in similar areas are a relative bargain.

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But research by insurer Standard Life

Yeah, this is a VI piece. The example they give is poor.

The "property pension" needs to be a separate investment vehicle from your main residence. The idea is you buy a home to live in and one to let. Hopefully the rent will cover the mortgage on the BTL and your salary pays the mortgage on your home. After 25 years you retire and the both mortgages are paid. The yield on the BTL will have increased and will hopefully have the same purchasing power, say £700pcm. You can either sell your main home, downsize and buy an annuity with the difference; Buy two flats, rent one and live in the other; live on the yield of the original BTL and your state pension; or sell the BTL and buy an annuity. The more BTL properties you own the higher the risk but also the higher the potential income during retirement. It is a very similar strategy to buying strong large cap stocks with good dividend growth.

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Except it's a lot trickier to get a loan for £200k to load up on Tesco and Unilever shares.

Exactly!

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  • 293 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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