Indeed, currently, there is considerable anecdotal evidence from Estate Agents which suggests that the most active buyers in the property market are ‘downsizers’. These are people selling up and moving down the property ladder, freeing up cash from their houses to supplement, or even fund in entirety, their retirements.
However is it possible that the conditions that made this possible in the past will not apply in future times? Is it, dare we say it, even probable that this will not apply?
Is it therefore sensible to plan accordingly; or, put another way, it is nonsense to construct a retirement plan assuming all will work in the future as it did in the past?
We think the ‘writing is on the wall’ as far as this strategy is concerned. For the vast majority of people the whole idea that their pension will come from their property is blind hope based on all illogical thesis. There is nothing like past experience to fool people! The reality is that the financial circumstances which allowed many people to convert their property value increases into pension money in their retirement is akin to a perfect storm. The conditions which existed, which fuelled way-above-inflation property price increases for most of the past 3-4 decades, simply will not exist in the foreseeable future.
The next generation, those who will retire over the next few decades, have to understand that the recent house price boom(s) are the exception not the rule. There are both economic and simple mathematical reasons why property price increases will not be sustainable. Plus many people now do not have mortgage repayment arrangements in place, will live longer in retirement and may well need more income in retirement.
A property used as an investment (or as an alternative to other investment options) can become an ‘all in’ strategy – if it works, great. However, if it doesn’t you’re stuck.
Financial planning is mostly about hedging your bets i.e. not going ‘all in’! It is about covering all possibilities, planning for all eventualities. You need to know what you ‘want’ then create a plan and put steps in place to try and achieve that plan!
The UK Property market – and the way the UK population view this market – has created a dangerous mind-set. It is very likely that property prices will not increase in the future as they have in the past; it is very possible that prices could fall. However the collective mind-set seems to be set on ever increasing prices. This makes for dangerous knock on assumptions; if this includes relying on a property as a means of funding one’s retirement that is not good financial planning and is an outright gamble.
We do not support the idea that “your property is your pension.” What if you can’t sell or release the funds?
You could sell your property but you shouldn’t rely on it solely.
This blog is based on our views and opinions and does not constitute financial advice, we have not covered every last individual technical point about pensions, our aim has been to help you understand the key thoughts and points, however before you take any action you need to ensure you take appropriate regulated advice.