The bleak reality of renting in retirement comes as Rightmove reported that the average cost of a property coming to market hit £375,000 in May.
Mortgage rates also remain higher than usual, affecting affordability for many homebuyers and meaning more might have to rely on renting for longer.
And the cost of renting has surged in recent years, with the average monthly rental cost coming to £1,200 in May, according to the Office for National Statistics (ONS).
The ONS also found that the annual projected rental cost increase has been 2.5% since 2016.
Regional variance
Standard Life projected these rental costs forward from the current state pension age of 66 to the average life expectancy. It found huge regional disparities, with the total sums required ranging from £660 for the North East to £2,060 for London in the first year.
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By the end of the 20-year renting period, the same cost will be £1,060 for the North East and an eye-watering £3,290 for London.
And, as these figures will change depending on things like inflation and interest rates, they could be higher in reality.
Essential retirement costs
The Pensions and Lifetime Savings Association recommends that pensioner couples need a minimum of £22,400 per year during their retirement to cover essential needs and some discretionary spending – but this excludes housing costs.
This means renters could find that they need total savings of £839,000 per household over the course of 20 years in retirement. That’s 87% more than those who are rent- and mortgage-free, who would require a much smaller amount of £448,000.
In December, YourMoney.com reported that a basic standard of living for retirees cost almost 20% more compared to the previous year.
‘Close to 11 million’ may need to rent in retirement
Claire Altman, managing director of individual retirement at Standard Life, which is part of Phoenix Group, commented: “For many people, their home not only has emotional significance, but it is also something they may expect to rely on in retirement.
“However, if house prices continue to rise, people will increasingly need to think about how they will meet essential housing costs in retirement, with the Pensions Policy Institute predicting the proportion of households that will own their home in retirement could fall from 78% to 63% by 2041.”
Catherine Foot, director of Phoenix Insights, said: “Phoenix Insights research found less than a third of current renters expect to buy a house, leaving close to 11 million people needing to fund ongoing rental costs in retirement.
“Planning ahead for these costs will be crucial, but this group typically face higher ongoing housing costs throughout their working lives, as well as a lack of predictability of costs, which makes it harder for them to save.”
She added: “Supporting people to remain in good work is critical to enabling those facing housing costs in later life to continue to earn and save for as long as they want or need.”
