Falling house prices will impact the financial resilience of many middle income earners, meaning fewer are ‘retirement ready’ in 2024.
Overall ‘retirement resilience’ has declined in the last year against a cost-of-living crisis. This trend looks set to continue in 2024, according to Hargreaves Lansdown, but it will be middle income earners that will be particularly impacted.
HL’s Savings and Resilience Barometer shows that ‘retirement resilience’ scores for middle income earners — those in the third of fourth wealth quintiles – are expected to deteriorate by 1.6 and 1.9 points respectively. This compares to a 1.1 point reduction for the highest earners.
HL says that this is because homeowners in these brackets typically hold lower equity shares in their property making them more vulnerable to falls in house prices. In addition, the rise in asset prices has failed to counterbalance the effects of rapid inflation on the savings required for a moderate retirement income.
Hargeaves Lansdown head or retirement analysis Helen Morrissey says: “[People’s] finances have endured a rough ride in recent years with the cost-of-living crisis biting chunks out of our savings and spiralling inflation pushing up the cost of a moderate retirement.
“The percentage of households on track for a moderate retirement income has fallen back to 39 per cent and ongoing turmoil looks set to make life even more difficult in 2024.
“Inflation may have fallen from the eye-watering heights seen last year but remains much higher than the Bank of England’s 2 per cent target. This will continue to push up the amount people need to save for retirement at precisely the point in time when they may have less to put away.”
Added to this it predicts that house prices that started to emerge in 2023 will continue, with the financial firms modelling the impact of a 5.9 per cent fall during 2024. It says this fall would have an impact across the board but would particularly affect middle earners who tend to have larger mortgages, relative to the value of their property, so are more vulnerable to the impact of price movements.
Morrissey adds: “Home ownership is an important component of overall retirement resilience, in that owning a home outright reduces day-to-day expenses compared to renters and also gives people an asset from which to take income if needed.
“However, it’s important to say planning for retirement is a long-term game and though current circumstances are difficult it is important that those who are able to continue to save for the long term wherever possible. If the financial strain of contributing to pensions has been too much, then it’s important to resume these contributions as soon as is practicable for you.”
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