One of the ironies of modern medicine is that many of us are given an extra 25- 30 years of life after retirement. How to finance this 30 years is a real issue. Everyone wants to be comfortable and not have money worries, but unless the pensioner has a good pension scheme, the last years can seem daunting on more than one front.
No one ever spent enough on their pension scheme and given that many schemes are not inflation proof but even so, the first 20 years of that 30 years looks manageable, everyone is hopefully reasonably robust and compos mentis. Then when health inevitably declines, after a fortune spent possibly on medical care, and then nursing home care, one of the partners dies.
The widow or widower struggles on, hoping that their offspring will be generous and sympathetic. Sadly even the kindest people can become impatient, even irate, with the frustrations of dealing with the old and no, they already have two kids and a whopping mortgage to support.
How to finance that extra 20 years when interest rates remain incredibly low? With any luck interest rates will rise quite soon, but thank goodness people bought homes when they were relatively cheap and can trade down smaller and move to less popular areas where housing is cheaper. Think Wales. Thousands of fairly ordinary homes in the UK are approaching the £1m mark. Esher in Surrey has the average cost of a home now touching £1m. Crazy.
Many pensioners take advantage of ‘equity release’ whereby their home is bought by an institution in return for a fat sum. When the householder dies the home goes to the company. People don’t like this because they want to leave their home to their children. If they organise the ‘seven year rule’ they can hand on their home without paying inheritance tax when they die.
But now we have something new – pensioners putting their savings into buy-to-lets. Research by London-based Sequre Property Investment said that more than half of people of 50-59 years see investing in rental property as the best way to secure their family’s financial security. They enjoy a much better return on their cash at the moment than putting it into a building society, and their children have an asset to inherit.
A recent study by the Prudential Group found a slightly different take: that a growing number of retirees are choosing to sell their homes and live in rental accommodation. Gut reaction here is this is not a good idea for many people, indeed could be seen as a desperate move. Their property is their last bit of insurance, their final nest egg, no one can throw them out onto the streets from their home. You have no tenure if you rent and rents go only one way – up!
It could be possible to turn the main home into a rented one, live off the income, spending a proportion on rented accommodation. Of course the main home has to work well as a let property, there are many properties that people will not choose to hire.
It is all worth thinking about. Anyone planning to buy a new home after downsizing on retirement with the thought that they might rent some day, should bear in mind the rental possibilities of the chosen property. As ever, location is highly significant. I have a friend who bought a nice house along the M4 corridor, but later she felt it would have been smarter if she had bought something by the sea, then if things got hard she could let it out for the summer and possibly autumn and go and rent, or persuade her relations to have her to stay.
But, as someone who has managed a buy-to -let for many years, be warned – rental is not a free lunch. Yes, you love the money but hate the problems which can be time consuming and expensive. For example, we found ourselves forking out for a dehumidifier because the tenant said a wall was damp. You have to keep the tenant happy, even the neurotic ones.
There can be issues with the house itself, appliances not working or need to be replaced, windows and locks stuck, also problems with leaks, etc. You may find you spend a lot of time having to go to the property to sort problems and resenting it keenly.
Owners of buy-to-lets try to forget about ‘voids’ – when the property doesn’t find a tenant quickly. Depressing. It can take months to find a tenant sometimes especially if the letting market weakens with too many properties available. An empty property can be a continual worry especially if there is a mortgage involved.
When you get older people have less energy and tend not to like hassle, it can make people anxious. This is not ideal if you are new to buy-to-letting in your 70s and for various reasons the experience is fraught with problems.
To keep troubles to a minimum, make sure the house or flat is in tip top condition when you let. If tenants can damage a chair or the boiler dials, they will. Get an agent to manage the property for you to reduce hassle (not cheap: costs 15-18 per cent of the rental income plus VAT), or at least pay for emergency call out insurance cover on the buy-to-let’s plumbing and central heating, electrics. Well worth it for peace of mind. Don’t do buy-to-let at all unless you have done the maths and are very confident it will be worth the effort and will make you good money.
Try surfing some of the general 50+ websites like oscaruk, it’s a commercial site that provides deals and discounts. There’s silversurfers, 50connect and betterafter50.com.
There are some lively US sites like bestofeverythingafter50 and aarp.org. I would be fascinated to check out the plentiful 50+ online dating sites.
The joy of the internet is that a 20 minute session can take you all over your world. Over 50s websites centre on lifestyle so they tend to be a bit predictable and soft on information. I am still searching for an ace site that is entertaining and informative, something you can’t live without.