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We'd like to think we'll have our mortgage paid off by the time we retire, simplifying our spending greatly in our post-work years. Unfortunately, a survey from Aegon shows that this dream scenario is far from certain, as 14% expected to still be paying off their mortgage at the age of 70.
The main reasons people gave for this assertion were higher house prices, getting their first home later than previous generations did and simply the option to borrow for longer. "Those left with an outstanding mortgage on their property face the prospect of either budgeting mortgage payments into their retirement or alternatively continuing to work," commented Steven Cameron, Pensions director at Aegon.
"We know that one in four people expect to still be working at 70, but not everyone will be fit enough or want to do so," he added. This could especially be a problem for the 42.5% of survey respondents who are renting who think they will still be renting when they are 70 years old. With the number of lifetime tenants continuing to rise, it's increasingly crucial to consider the practicalities of post-work life as early as possible.
"The impact rent payments will have on your retirement plans needs to be carefully considered," said Steven. "Renting while working is a very different situation to renting when retired. People need to consider how feasible it is to fund rent when they are no longer earning a salary. It would be dangerous to assume the state will continue to provide the same level of housing benefits to future retirees as they currently pay."
Given rising rents and other findings that, even without taking housing costs into account, many people are not saving enough to maintain their lifestyle without their salary, clearly more needs to be done to help us prepare ourselves. While the implementation of automatic enrolment into a workplace pension was a good start, the levels that are currently being saved still won't be enough to sustain a lot of people's lifestyles – not to mention those that don't earn enough to save for later life with their employers' help or are their own boss.
Young people will have some tough decisions to make; do you cut down on everyday expenses and try to get that foot on the property ladder anyway, or accept life as a tenant and start putting more away for later life? Certainly, there are arguments in favour of either approach, and much will depend on your own personal circumstances.
Anticipating this conundrum, the Government last year introduced the lifetime ISA, which can be opened by people aged 18 to 40 and allows one to save up to £4,000 a year for both retirement and a first home. Yet even with the 25% Government bonus, this alone might not be enough to see people safely through retirement.
A combination of workplace pension saving (or a private pension if you're self-employed) and your own savings pots will likely need to be considered to adequately prepare for retirement – don't be afraid to contact an adviser if you're not sure you're saving enough or how best to set aside more. "If saving more into a pension is not an option, working into later life might be the only choice tenants have to keep a roof over their heads," concluded Steven.
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