Why clients should avoid relying on property to fund retirement

  • Consider why clients are relying on property to fund their retirement.
  • Learn what the risks are of relying on property and cash, and why clients are averse to saving into a pension.
  • Understand how advisers can help clients to avoid relying on equity in the home for retirement income.
Why clients should avoid relying on property to fund retirement

Thanks to stagnating house prices, rising interest rates, and a buy-to-let crackdown, the UK property market is under increasing pressure. 

At the same time, younger generations are finding it more and more difficult to get on the housing ladder, while many of those who do own property are forced to sell up to fund social care.

Despite this harsh backdrop, The Wisdom Council recently found that more than a third of Brits across all age groups still see equity held in their property as their ticket to financial security in retirement.

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Indeed, one in four millennials (many of whom are struggling to get onto the housing ladder) are banking on property equity to boost retirement savings.

We think that a lack of knowledge is giving way to wary savers who are avoiding investment products in favour of taking a one-way bet on what they see as the ‘safe’ property market.

With a Pensions and Lifetime Savings Association (PLSA) report recently finding that 30 million people risk running out of money in retirement but are unsure about how to save, it is time for the industry to improve the way it communicates the realities of retirement funding.

Generation game

Out of the 2,000 Brits surveyed by The Wisdom Council, 39 per cent answered "equity in my main residence" when asked to identify the financial holdings they expect to rely on the most in retirement.

In fact, alongside cash, it was by far the most popular response, beating off other potential retirement income providers like Stocks and Shares Isas and inheritance. It may, therefore, come as some surprise to hear that the Financial Conduct Authority (FCA) estimates that just 3 per cent of people actually use money made from equity release in retirement.

Interestingly, this support spans generations, with 46 per cent of Baby Boomers (those aged 55 to 74), 43 per cent of generation Xers (those in the age group 35 to 54) and a quarter of millennials (18 to 34 year olds) listing property value as their expected post-retirement breadwinner.

With experiences of getting onto, and indeed climbing, the property ladder varying so wildly between these three age groups, can they all be right?

Although Baby Boomers could easily borrow from local building societies for a deposit and Generation Xers were offered 110 per cent loans to buy in a rising market, home ownership is still a distant dream for many millennials.

Indeed, not one of the youngsters that The Wisdom Council spoke to in or around Greater London owned their own house yet. Mostly, these millennials said they hoped to own in their early 30s.

However, when pushed, they were willing to concede that it was more likely to be their late-30s or early 40s, given high prices in and around London.

The general feeling among members of this age group is that, while essential, saving is genuinely very tough, even forcing many to move back in with their parents as adult children.