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Could equity release fund your retirement?

21/03/2022 |  min read

Retirement comes with great expectation and adjusting to life without work for the first time will likely leave you feeling a mixture of excitement and apprehension. You may be navigating new roles and responsibilities and considering how you can make the next chapter of your life stress-free.

Preparing to enter and enjoy retirement tends to require plenty of planning, both emotionally and financially, and there are multiple options available to you if you are weighing up how best to tackle the latter.

What are the financial options in retirement?

With newfound free time may come some extra financial pressures, particularly as the cost of living rises and the average UK household is predicted to experience a £1,200 a year hit to their income in 2022 – the year of the squeeze. It will be important to work out how your essential spending aligns with your more aspirational retirement goals.

Even if you are feeling quite confident with your budgeting, you may still decide that you could benefit from some additional cash to really transform your retirement plans and live your leisure years worry-free.

Some of the most popular ways to fund retirement are:

  • Pension funds – there are different kinds of pension that you may have, including private pensions and the state pension. You may find that these funds do not stretch far enough, particularly if you are eligible only for a state pension. As such, it is increasingly common to boost a pension income with another financial solution in retirement.
  • Existing savings – if you have been able to save regularly throughout your working life, using these savings is a good way to supplement your pension fund.
  • Downsizing – selling your current property and moving to a smaller one is a popular way of generating cash in retirement and can be particularly appealing if children have flown the nest and you are finding that your current space is more than you need.
  • Equity release – popular for those who want to stay in their current home for retirement, releasing equity from your property can unlock some necessary funds. With an equity release product, you can borrow a tax-free cash lump sum based on your age and the value of your home.

What is equity release?

The UK’s most popular equity release product, a Lifetime Mortgage, is a way for homeowners aged 55 or above to release the value built up within the home.

Find out more about the eligibility criteria for a Lifetime Mortgage here.

With a Lifetime Mortgage, you retain full ownership of your home and there is no requirement to make any repayments, although you can opt to do so if you wish.

Interest rolls up and the amount borrowed, plus interest, is only required to be paid back when the last homeowner passes away or moves into long-term care. This is usually achieved through the sale of the home.

Because releasing equity requires from you to take from your estate now, its future value will be reduced. Your entitlement to means-tested benefits may also be affected. Therefore, it is important to weigh up both your short-term and long-term needs when considering if a Lifetime Mortgage is a suitable funding solution for your retirement.

How can you use equity release to make the most of your retirement?

Your tax-free cash can be used to fund a variety of retirement goals, such as:

  • Clearing an existing mortgage.
  • Making home improvements.
  • Funding holidays and luxury purchases.
  • Gifting an early inheritance

If you have clear plans for when you retire then you can opt to take all the equity available to you as one lump sum.

However, equity release plans are increasingly flexible, so if you have multiple goals or anticipate that your needs and desires might change as your retirement years progress then you could opt for a type of Lifetime Mortgage called a Drawdown Lifetime Mortgage.

With a Drawdown plan, you can release a smaller initial lump sum and keep the remaining equity available to you in an interest-free reserve to draw upon at a later date should you wish. This option might be worth serious consideration for those unsure if their pension income will keep up with the anticipated squeeze on living costs.

Speak to an adviser.

If you are considering releasing equity to fund your retirement, the best way to understand the different plans and features that might suit you is to seek advice from an equity release specialist.

At Responsible Equity Release, we can arrange for you to have a free, no-obligation appointment with one of our fully qualified advisers. You will be assigned a personal adviser, local to you, who will help you decide how best to meet your retirement goals and consider all available options, including the alternatives to equity release.

To receive an instant estimate of the amount of tax-free cash you could release, use our free online calculator here.

Alternatively, call us on 0800 048 5384 today to speak with a member of our friendly Information Team. They will be able to check your eligibility, answer any initial questions you may have and, when you’re ready, arrange for a no-obligation advice appointment.

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