Following pension changes introduced last spring, many retirees are spending their cash on improving their homes.
George Osborne announced in the 2014 Budget that retirees with a defined contribution pension would no longer have to purchase an annuity – which provides an annual retirement income – as standard. While pensioners can still purchase an annuity if they choose to, they’re no longer under obligation to do so and can invest or save it in a way that suits them.
Save or spend
A recent report by the Pensions and Lifetime Savings Association revealed that, although only the minority of savers have chosen to spend their pension pot under the new rules (rather than invest or save it), the majority of those who have are splashing their cash on home improvements. This is followed by large one-off purchases like a car or holiday.
So it seems home is where the heart is when it comes to how retirees choose to spend their pension pot. And while what you decide to do with your retirement fund should always be considered very carefully, if you do choose to spend rather than save it, home improvements could be a good option.
Finish those odd jobs
We often talk about how you can grow and adapt your home to suit your needs and your family, and this isn’t something that stops in retirement. In fact, you might need to think about adapting your home all over again.
For one, as soon as you stop heading out to the office each day and spend longer in your home, you might quickly notice all those little problems with your house – like outdated décor or damp. You can’t keep ignoring it now you’re spending more time at home, so the time might be right to sort it.
Creating a property you love is really important if you’re going to be spending more time in it, and the same goes for how functional it is. For example, you may have been willing to put up with an outdated kitchen for the last few years because you ate your breakfast and lunch while at work, but now you’ll be preparing three meals in it a day there’s no more putting off giving it the makeover it needs.
A home to suit your needs
Of course, growing older brings with it its own challenges and you need a home that can comfortably cater to you at this time. If your needs have changed over the years – perhaps you struggle with stairs or getting in and out of the bath – choosing to put money from your pension towards the home improvements that take these requirements into account could be a wise move.
If you prefer to invest or save your pension rather than spend it, you could downsize instead. However, you may be unwilling to do this if you have family and friends nearby - knowing the place you live like the back of your hand can be a real advantage during your retirement years. So you may come to the conclusion that the best use of your pension pot is making sure your home offers everything you need it to now.
The UK’s state retirement age is 65 (although it’s set to rise over the next few years), while life expectancy is 80, so you can expect to live for many years after you’ve retired. This means you should be sure you have the money you need to cover all your outgoings and provide you with the retirement you want once you stop receiving an income.
While it can be tempting to take a chunk of cash out of your pension, weigh up how this will impact on your retirement income. If the home improvements you’re planning are vital and you know the work won’t leave you struggling financially, using cash from your pension could be a worthwhile move. Ultimately, only you can decide how your pension pot is best spent.
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