If you’re still renting after you stop work, then relying on the rules of thumb of traditional retirement planning isn’t necessarily going to be effective, according to Hargreaves Lansdown.

Helen Morrissey, senior pensions and retirement analyst at the online wealth management service, said: “Generation Rent could face some horrible decisions and compromises in retirement, unless they plan carefully for far higher costs than those who have been able to afford a place of their own.

“Traditional retirement planning assumes you’ve paid the mortgage off, so you don’t have any regular housing expenses. It means most people plan to live on a lower monthly income than they do when they’re working.”

If you’re still paying more than a third of your income on rent, it will have a profound impact on your retirement finances, and you’re going to need a much larger pot. So, if you’re going to rent and enjoy the retirement you want, you need to plan carefully.

Morrisey continued: “A combination of higher house prices and higher living costs is making getting onto the housing ladder nigh-on impossible for millions of people. While younger people have always tended to rent, more are now renting later in life. And at this stage there’s always the risk that expensive life stages – like starting a family – put people on the back foot financially for years. It means more people are likely to get to retirement and still be paying rent.”

The financial firm found that 17% of retired people are still renting, 7% from a private landlord, half of whom have housing costs of over £6,000, compared to only 36% who own with a mortgage.

Almost one in five (18%) of older people in privately rented homes are in fuel poverty, compared to 13% who own with a mortgage and 6% who own outright.

Pros and cons

Hargreaves Lansdown said that, unless they make adequate retirement plans, older renters could face extra financial challenges, including:

1. Your monthly fixed costs will be much higher than for retirees who own. Retired renters are likely to spend more than a third of their income on rent, so you will need to work even harder to build enough money in your pension pot to cover the cost.

2. In some parts of the country rents are so high that it may not be feasible to save enough to cover the cost. If you can’t save enough, you may have to downsize or move to a cheaper area as soon as you retire, to cut your living expenses.

3. To build a large enough pension pot means contributing more each month, investing the pension so that it works harder, or working later in life – or a combination of all three. It means your retirement could be much shorter than you’d planned.

4. We should all have 1-3 years’ worth of essential spending in an easy access savings account. If you’re paying the rent, your essentials will be much more expensive, so it’s important to plan ahead for a larger safety net.

5. One common approach to building an emergency fund for retirement is to use your pension lump sum, but if you need to pay rent in retirement, you may not be able to afford to take the lump sum because it will reduce your monthly income.

6. You need to plan for inflation throughout retirement, because the price of rents tends to increase, and at times can seriously escalate. If you rent the most expensive home you can possibly afford, you may be forced into a move as rents rise, so consider somewhere cheaper that gives you more room to manoeuvre.

7. If you need to pay for care, you cannot tap into the equity in your home. And while it may mean the local authority covers the cost of care, it dramatically reduces the amount of choice you have in the process.

8. If you want to have assets to leave to your loved ones, without the family home to pass on, you would need to have other savings or investments.

9.You have to accept the insecurity of renting, which means you may have to move when it doesn’t suit you.

10. You can’t gradually adapt your home as your needs change, so if your mobility changes you may well need to move house.

However, the wealth management service pointed out some benefits in retirement for renters, including:

1. You don’t need to set aside large lump sums for home maintenance, and you don’t run the risk of being stuck in a run-down property because you can’t afford the upkeep.

2. You don’t have the hassle of maintenance either – although you have to accept your landlord’s approach to it.

3. You can match the property to your needs at every stage, so you can gradually downsize, move to areas closer to amenities, or a more accessible property, without the huge costs of buying and selling.

4. You can move to be closer to family – and then move again if they do, rather than tying yourself to a single property and location.

5. You can move to a supported environment if you need to, much more quickly and easily.