‘Cash poor and asset rich’ is a phrase commonly used to describe the elderly in the UK.
Booming house prices mixed with the rising cost of living has left many of our over 60s sitting on, or rather in, goldmines, but with only pennies left to cover their day-to-day living costs. So, what is the true extent of the problem, and what should advisers take into consideration when discussing retirement planning with the over 60s?
Better off than ever?
We recently carried out a survey of over 1,900 consumers in order to find out the true extent of the over 60s ‘retirement goldmine’. Somewhat astonishing results reveal that housing equity for the over 60s currently stands at £841 billion – which breaks down to an average of £82,446 per person.
It would then seem that the over 60s are better off than ever, if they are all sitting on tens of thousands of pounds worth of equity. Unfortunately, this is not the case. Of the over 60s questioned in our survey, two-thirds got by on under £10,000 per year. So, how have assets and available income become so polarised, and what are the possible solutions?
The housing market has had a considerable boom over recent years and as a result, the average property price in the UK has increased by 204 per cent in the last 10 years. This leaves the average house price in the UK currently standing at £196,525.
However, the over 60 generation are unsurprisingly out of touch with this kind of information. The majority of respondents on our survey had lived in their current residence for over 20 years, so it is not surprising to hear that only 10 per cent could give an accurate estimate of their home’s value.
Not a cheap solution
A fairly simple solution to these problems would be to advise them to sell their home in order to downsize – therefore releasing a cash lump sum for them to put towards their living costs. However, this is no cheap solution. The cost of moving home currently stands at a staggering £9,500 on average – a cost that is notably underestimated by many over 60s. In fact, only 20 per cent could identify this as the amount the solicitors and, estate agent fees, etc would add up to. The rest of the respondents either had no idea or underestimated the cost.
In addition, the fact that so many over 60s have lived in their home for over 20 years means they have a huge sentimental attachment to their property. Many would have raised their family there and as a result, the thought of leaving would cause many unnecessary heartache. These feelings were reflected in the survey, with only 6 per cent of over 60s saying they would be willing to sell their home to fund their retirement.
Alternative
An alternative route for the asset rich over 60s who don’t want to leave their home is equity release. This will allow them to stay in the home they are attached to as well as releasing the extra equity they need to increase their standard of living.
As of April this year, both home reversion plans and lifetime mortgages are now fully regulated by the Financial Services Authority (FSA). In addition, members of Safe Home Income Plans (SHIP) all offer a no negative equity guarantee, so the consumer will never be left owing more than the value of their home. As a result, this can be an option that will offer security to home owners that would like the extra money, but save them the upheaval of having to move home.
Of course this will have implications for the client and their family – affecting their inheritance as well as possible benefits allowance. This is something the client will have to consider along with their family – who ought to be encouraged to take an active role in the decision too, if the client so wishes.
Worrying statistic
It is a worrying statistic to hear that so many over 60s are having to live off such a low annual allowance as a result of the rising cost of living. These changes have effectively seen them priced out of day-to-day life, which seems so unnecessary considering the amount of equity they could have tied up in their property.
Advisers and lenders must take it upon themselves to get this message across to the over 60s. By doing this they can look into their finances in order to assess whether releasing equity from their home would be a good option for them. The over 60s should not have to struggle to meet their daily outgoing costs, so hopefully by making them aware of their potential retirement goldmine they have a chance to ease any financial burdens and raise their standard of living.
Get the daily news delivered to your inbox
Find the latest industry jobs
Register for the next forum
