Renting in retirement

mat1964

I am currently 56 and I am not sure about whether my job will last much longer.  If I do lose it, it will be very hard if not impossible to find an equivalent job and certainly an anywhere near equivalent salary.  It's a concern as I have a fairly large mortgage and other debts.  It's possible I may receive an offer on my house this week.  If I sell, it will leave me with around £450k net after repayment of the mortgage and other debts and the sales cost. I also have a pension pot currently around £200k and a DB pension which is already paying £8200k a year.

If I do sell, I am considering renting (£1200 per month initially as I have to be in London for the moment) not buying - and if I do lose my job - retiring.  That would leave me £450k, plus the £200k pot plus £8200 DB pension.  At some point (hopefully not anytime soon) there would be an inheritance of around £400k plus the state pension at 67.

I am single, no kids and health is not optimal.  I am thinking I would have enough for a reasonably comfortable retirement even with the rent.  I would not take the pension pot until the cash ran out -then the pot, which would hopefully have increased by a reasonable amount,  and then when/if the inheritance and state pension.  The way I look at it, if I used the £450k to buy a new house - that's equivalent  to more than 31 years of rent payments at £1200 (obviously rents will go up but I will be able to move to a cheaper area in time).  If I had kids to leave to, it would be a different situation.

Does this make sense or have I missed something?

atush

Renting in retirement is a risky proposition.  Can you not buy a place outside of london if you do retire?

xylophone

You are over 55 - is there any possibility of your obtaining some form of secure rental through a housing association/ retirement scheme?

[Deleted User]

I think its a solid plan, with one caveat. The money from the sale of the house shouldn’t stay in cash. It should be invested into a diversified and balanced portfolio of stocks and bonds. 

Cash will be depleted over time due to inflation.  

Renting and owning a diversified and balanced portfolio of stocks and bonds is far safer than having the vast majority of your net worth in a single asset (house).  

Also, you should keep inheritance out of your equation. 

RetSol

My concern about your plan is that you are treating your house as an asset, not a home.  Do you want to be a tenant with little security of tenure, possibly for a considerable number of years?
I am curious to know what is driving your current house sale - is it concerns about redundancy?
If made redundant, what compensation will you be entitled to?  
I agree about leaving the inheritance out of the equation. 

[Deleted User]

RetSol said:

My concern about your plan is that you are treating your house as an asset, not a home.  Do you want to be a tenant with little security of tenure, possibly for a considerable number of years?

His house is an asset. Its the vast majority of his net worth (450k plus the value of the debt). 

The “security of tenure” is a purely psychological issue.  In reality people with cash flow will always have a nice place to rent and call home.  People without cashflow will struggle regardless of owning an expensive house. Having most of your eggs in a single illiquid basket is dangerous. 650k investment plus his DB pension will provide a decent cash flow. 

mat1964

thanks for all the comments - very helpful.  I have been a home owner since I was 22 - and renting has always been something I wanted to avoid.  However, having looked at the numbers I think I would have much more disposable income  -even with the rent - with this scenario.  As noted above, it is a bit of a psychological block though when you have always owned a home.

Since I wrote the post, I have had the offer on my house - which I have turned down - I will see if an improved one comes as the first was a little low.  

[Deleted User]

You also need a clear and well thought through strategy for the money, an IPS (investment policy statement).  

Some of the books which can help:
- https://www.amazon.co.uk/DIY-Pensions-Simple-Retirement-Planning-ebook/dp/B00B7QN8XM
- https://en.m.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
- https://www.amazon.com/gp/bookseries/B00SNMP4H6/ref=dp_st_0988780321

RetSol

If I had 650k to invest and was dependent on it for my income, I would be looking for an IFA.  
IFAs generally offer a free first meeting and you might want to consider running your plan past a couple of them. I have found this to be a useful exercise in the recent past. I went down the DIY route, in the end. But I was impressed by the IFAs I met and am happy to pass on details, if you wish, @mat1964.  They are central-London based. 

joshiesaunt

You could buy a little retirement flat in somewhere like Lewes for £150K - commutable to London if you don't need to commute for long or every day.  This would offer you housing security at least.

mat1964

joshiesaunt said:

You could buy a little retirement flat in somewhere like Lewes for £150K - commutable to London if you don't need to commute for long or every day.  This would offer you housing security at least.

thanks - at some stage I would move further out but for family reasons, I need to be within M25 at the moment.