FINANCIAL planning has become an essential part of growing old; working out the best time to retire with enough resources and reserves to enjoy the remaining years.
An independent financial adviser (IFA) can suggest the best way of doing that, making sure the money side of your life is fit for purpose.
But do we give enough thought to what we really want in the twilight years, beyond the given – health and happiness? Financial security will assist in that, but lifestyle is much more than just money.
One of the key questions is whether you want to live as a pensioner in the same house, town and area that has been “home” for the previous quarter of a century.
We are getting on the housing ladder much later these days (into our thirties) and moving less often; yet we are more mobile and travel more frequently at home and abroad.
Judgments have to be made carefully.
The attraction of the seaside town that has hosted many enjoyable family holidays over the years might wane if stuck there permanently with a half –functioning town in the winter months and then packed out over the summer with tourists.
There probably has to be more pressing reasons for moving than staying put. If you have lived somewhere for a couple of decades, it’s more than likely you are comfortable with the place and have made many friends.
Having a young family is the quickest way to settling into a new community; the older we get, especially if we are no longer part of the workforce, there are fewer opportunities to integrate.
There is no magic formula, no easy answers or solutions – and there might not be a problem in the first place. Yet there is little harm in considering and discussing what you want from retirement, a period that could extend beyond two decades with increasing life expectancy.
Clearly the financial institutions do not expect the elderly to go “gently into that good night.”
Life expectancy is part of it, but the new pensions freedom has given the elderly access to the savings that until recently had to be used to buy an annuity. Of the £1 billion that has been released through the new pension rules, over £100m has been invested in the buy-to-let market.
That market is not only attractive to buyers, but also the lenders. Landlords pay a minimum deposit of 25 per cent, so the transaction carries less risk than a normal property purchase with a 5 per cent or 10 per cent deposit.
Moneyfacts has revealed that currently there are almost 700 buy-to-let products on the market, with fewer than 200 available for first-time buyers. This is leading to worries that the influx of this pension money is going to fuel another property boom and push that first home even further away from today’s aspiring owners.
At the same time, data from the National Housing Federation (NHF) has shown that UK rents are the highest in Europe; here an average monthly rent is £750 – the European average is £400.
Earnings in Germany and the Netherlands are comparable to the UK, but rental rates are about 50 per cent. Rent takes around 40 per cent of a private tenant’s salary here – the European average is 28 per cent.
Another interesting statistic from the NHF highlights the uncertain world of the UK private renter. Around 43 per cent of Europe’s renters have moved in the past five years – here that figure is 77 per cent.
There is a growing feeling that there could be a sting in the tail for buy-to-let investors when George Osborne unveils his first Conservative budget on July 8. Osborne has made many budget speeches, but this will be his first outside the constraints of a Coalition government.
Like all the parties, the Tories made many promises regarding housing in the lead-up to the General Election. As well as shortage of new-build houses, the cost of moving and the “affordability” process of getting a new mortgage is keeping owners where they are.
As the statistics show, many of the new mortgages taken out are “buy-to-let”, just adding to a current owner’s property portfolio rather than allowing newcomers onto the housing ladder.
As well as cheaper rates and interest-only mortgages, landlords get valuable tax breaks, including setting the costs of running the rented property, including the interest paid on the mortgage, against the rent received.
With the current blockage in the housing market, some believe this is just too generous and buy-to-let should be made less attractive to investors - although, having just introduced the pension freedoms, the Tory government would be loathed to penalize those who have used that freedom to invest here.
It’s a dilemma for the chancellor. He could certainly free up housing by reducing the cost of moving for those of a certain age who want to down-size; removing stamp duty for them would be one way.
:: Darren McKeever (dmckeever@wwfp.net) is Northern Ireland adviser of Worldwide Financial Planning, which is authorised and regulated by the Financial Services Authority. For a free, no obligation initial chat about your individual finances, call 028 68632692, e-mail info@wwfp.net or click on www.wwfp.net. Follow us on Twitter: @WorldwideFP.
