Can you afford to rent in retirement?
Renting in retirement can give extra flexibility, but the cost could be prohibitive for most pensioners and it comes with unique drawbacks. We look at the average cost of renting where you are.
When you’re planning your retirement, one of the key decisions you’ll need to make is whether you will live in your own home, or spend your golden years renting.
The latter is not a cheap option. Renting in retirement will cost an average of £419,000 as rents are expected to more than double in the next 20 years, according to research from retirement specialist Standard Life.
Data from the Office for National Statistics (ONS) shows that while 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.
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The high cost means those who plan to rent during their retirement will need to ensure their pension pots support that choice. Despite this, over six million people who expect to pay housing costs in retirement don't know how they'll afford them, according to data from Royal London.
The data showed those who expect to pay housing costs in retirement have an average pension pot of just £34,948, a figure far lower than needed to cover rental costs during a 20 year retirement, let alone pay for other essentials.
Those who describe themselves as being in financial crisis are particularly affected. Nearly six in ten of this cohort say they expect to pay rent or mortgage costs in retirement, compared to just 11% of those who say they are financially comfortable.
Is renting in retirement on the rise?
Despite it being expensive, more people are now renting in retirement as higher housing costs mean buying a home is not possible for some.
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.
Sarah Pennells, consumer finance specialist at Royal London, said: "For generations, reaching retirement often meant reaching the point where housing costs were behind you. But for millions of today's retirees and future retirees, that simply isn't the reality.
"What's particularly worrying is that over six million people who expect to pay rent or mortgage costs in retirement don't know how they'll cover those payments. If you're heading towards retirement and expect to have housing costs, it's important to factor these into your retirement planning as early as possible.”
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.
Royal London’s data shows people in London, the South East and the South of England are also among the most likely to expect to pay housing costs in retirement, with 34% saying they expect to still be paying rent or a mortgage after they retire.
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.
