Can you afford to rent in retirement?
When you’re planning your retirement, one of the key decisions you’ll need to make is what your residential status will be: especially, will you live in your own home throughout your golden years, or spend your retirement renting?
The latter is not a cheap option. Renting in retirement will now cost an average of £419,000 as rents are expected to more than double in the next 20 years, according to new research from retirement specialist Standard Life.
While data from the Office for National Statistics (ONS) shows rents are an average of £1,160 today, this could climb to £2,350 by 2046 if they continue to grow by an average of 3.8% a year, the research shows.
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The high cost means those who plan to rent into their retirement will need to ensure their pension pots support that choice.
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But ONS data shows the average pension wealth for someone aged 65 to 74 was just £145,900 in 2022 – much less than the rental costs over a 20 year retirement.
It means pensioners are at risk of not having enough to pay for their housing costs if they do not own a house and plan to rent when they retire.
Pete Cowell, head of annuities at Standard Life said: “For a growing number of people, housing costs could be the single biggest expense they face in later life, adding many thousands of pounds a year to the income needed to maintain a minimum standard of living.
“While support is available for those on the lowest incomes, many retirees will still need to plan for how ongoing housing costs will be met over the long term.”
Although it is expensive, more people are now renting in retirement. Data from the government’s Pensions Commission shows the proportion of households renting privately in retirement has more than doubled in the last 20 years.
Cowell added: “As renting in later life becomes more common, planning how those costs will be met is likely to become one of the most important financial decisions people make.
“Whether through savings, guaranteed retirement income products or a combination of both, having a clear plan for meeting those costs can make a significant difference to long-term financial security.”
The true cost of renting in retirement where you are
If you are planning to rent during your retirement, you will need to take a careful look at your pension pot and work out if you can afford to do so where you are as prices vary wildly across the UK.
The most expensive place to rent as a pensioner is London, where the average price of a year’s rent is £28,520.
That works out to £859,000 when over the course of a standard 20-year retirement, factoring in rental price growth.
The region with the second-highest expected renting cost is the South East, where the average for a year is £17,610 or £531,000 over 20 years – much lower than the price in the capital, but still far more than in cheaper regions of the UK.
As with house prices, there is a large North-South divide in rental costs as the North of England and the devolved nations are much cheaper than the South of England.
The cheapest region to rent in retirement is the North East of England, where a year’s rent costs an average of £9,670. This amounts to £291,000 over 20 years.
Meanwhile, the second-cheapest region is Yorkshire and the Humber, where the average rent for a year is £10,650 – or £321,000 over a 20 year retirement.
The interactive map below shows the projected cost of renting during a 20-year retirement.
Should you rent in retirement?
While renting in retirement is expensive, there are also some positive sides to renting rather than owning your own home.
“If you decide to rent, then you have the flexibility to move around without the burden of having to sell a home,” said Helen Morrissey, head of retirement analysis at wealth manager Hargreaves Lansdown.
This may mean you can be closer to your loved ones, or you may choose to move to a cheaper part of the country or one that fits your lifestyle better.
Certain maintenance problems with the home you rent will also be the responsibility of the landlord, meaning you will not need to fork to fix a leaky roof, for example.
Additionally, if you do not expect to pay off your mortgage before the end of your retirement, renting can be a more flexible solution and potentially a cheaper option depending on where you live.
There are of course drawbacks, the main one being that the home you rent is owned by your landlord, so you do not have the final say on what happens to the property.
In the worst-case scenario, you may be evicted from your home, though the new Renters’ Rights Act means this is much more difficult for landlords.
If you own your home instead, you will not need to worry about being evicted or getting approval to make changes to your property. Once you have paid off your mortgage, you will have far lower monthly costs too, meaning you will have more money in your pocket each month.
“Going into retirement owning your own home means your day-to-day expenses will likely be lower,” said Morrissey. “You can also use your home to release money either through equity release, or downsizing, should you need it.”
Ultimately, whether you should rent in retirement is dependent on your lifestyle, whether you already own a house, and whether you can afford it with your pension.
