Do you need a higher pension? ‘Huge reality check coming’ for retirees with a mortgage.
Britons who agree to lengthier mortgage terms may end up jeopardizing their retirement plans.
The majority of 40-year mortgages have a maximum age of 75 as part of the terms. According to the Office for National Statistics, this is seven years after someone in their mid-thirties is currently due to begin collecting the state pension and 12 years beyond the average healthy life expectancy in the UK.
Homeowners, particularly first-time purchasers in their mid-thirties who are considering long mortgage terms, should carefully evaluate the ramifications for their retirement plans, according to Interactive Investor.
They may need to contribute much more to their pensions or work for longer periods of time when they retire to satisfy their mortgage obligations. However, ill health and other life circumstances frequently prevent people from working for longer periods of time, even if that is their goal.
This could put those with mortgages in their older years at risk of not being able to keep up with their payments.
The average age of respondents to the interactive investor Great British Retirement Survey was 60, with an average of 11 years left on their mortgage.
This shows that some people will still have a mortgage when they retire: 12 percent of those polled expressed concern that they would never be able to pay it off.
In most ‘what you need’ retirement income scenarios, all housing costs are assumed to be paid off. Because of the rise of the 40-year mortgage and a long-term increase in the number of individuals renting privately, a growing percentage of retirees will have housing expenditures when they retire.
For these people, the amount of money they’ll need in their pension to meet living and housing expenditures could be far higher than their present projections.
If they are unable to pay this additional budget for housing costs through increased contributions to employer pensions or by working until old age, they may be forced to deplete their private pension savings much sooner. They’d therefore be reliant on the state pension in their final years of retirement.
According to interactive investor’s calculations, a 30-year-old earning £27,500 will have a pension pot worth almost £190,000 if they contribute 8% of their salary into a workplace scheme until they are 68.
£20,800 per year, according to the Pensions and Lifetime Savings Association (PLSA). “Brinkwire News Summary.”