Key Takeaways
- The best ways to supplement your pension with equity release include releasing funds from your home as a lump sum or regular income, to help meet your financial needs in retirement.
- By unlocking the equity in your home, you can increase your retirement income, providing an additional source of funds for living expenses, home improvements or holidays.
- The pros include increased financial flexibility and a potential reduction in inheritance tax, while the cons include a reduction in your estate’s value and potentially higher long-term costs.
- Equity release works for pension top ups by allowing you to access the value tied up in your home, either as a one-off lump sum or as regular payments.
- Seek advice from a qualified equity release adviser, understand the terms and conditions and consider the potential long-term implications.
Financing retirement has changed over the years, and finding ways of supplementing your pension is almost becoming a necessity.
The more debt-free your retirement is, the less likely you’ll need government assistance in your senior years.
You can use your property as an investment – if you start investing in the property while working and continue after retirement.
This would mainly be through a buy-to-let scheme and could help you grow your wealth without needing to do extra work.
It doesn’t matter whether you’re looking at homes with gardens or apartments – what matters most is that you can find something that fits your needs perfectly.
We understand that financing your retirement is important to you, so our team has explored different ways to supplement your pension. One of them is equity release.
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2 Ways to Use Your Home to Finance Retirement Other Than Equity Release
Downsizing
Downsizing is a great way to supplement your pension1 if you’re looking for an apartment or a townhouse.
They often come with amenities that make them well-suited for downsizing, such as built-in storage.
In addition, since apartments typically cost less than family-sized homes, it could mean that any savings made from not having to maintain the property will go towards other costs, such as travel.
On the other hand, many retirees choose their location due to affordability rather than proximity to their family, so the downside might be feeling isolated from family members who may reside far away.
Beware!
Feelings of isolation and loneliness are terrible for mental health.2 It’s essential to make sure that somebody is nearby for any in-person needs like going to the doctor.
It also might be good if people who live nearby could help out with more demanding tasks, such as grocery shopping.
Some retirees may not have kids themselves, so they may need someone close by if they don’t feel comfortable driving independently due to a health concern.
Letting Out a Room
This is a way to generate some additional income to help you when it’s time to retire.
You can use the rental income as a supplement or even live in one of the rooms yourself and rent out the other space.
In addition, you could list your home on Airbnb3, constantly meeting new people from all over the world.
8 Reasons Why Equity Release Could Be an Excellent Choice
An equity release scheme can supplement pension income by unlocking cash from a property like a house.
Here are 8 reasons why equity release is a good thing:
- Gives you access to cash flow.4
- Relieves future worries about unexpected expenses.
- Allows retirees to get back some of what they paid off during their lifetime through a home loan or mortgage,5 with monthly repayments based upon how much money is available from the value of the property.
- An equity release plan can offer peace of mind about future expenses while still owning your own home.
- It’s tax-free income.
- Equity release schemes are a type of mortgage insurance that protect lenders if you fail to repay your loan on time.
- It also protects you by giving you peace of mind in retirement, even though it does mean that when you die, there may be less equity in the property.
- Lastly, it can be a great way for people to supplement their income and provide them with some of what they have earned over the years, while still retaining ownership.
Things to Consider
As with all financial matters, there will be things to consider, including whether there’s available equity to release and what impact it could have on the inheritance you leave.
Let’s take a look at more considerations:
- You will need to be sure that your home has some equity left in order to secure funding – which means looking at how much mortgage debt is still outstanding and working out if this would provide enough funds for equity release.
- You will need to work out whether or not property prices in the UK have been drastically changing over recent years because they could well affect any equity release plan, as repayment amounts might change too.
- When choosing an adviser or broker, make sure they have good qualifications and experience, this way, you can feel confident that everything is being done properly.
- Equity release will impact the amount of inheritance you can leave.
- Equity release could impact your entitlement to means-tested benefits now or in the future.
- Equity release may not be suitable for everyone, which is why your advisor will ask you to consider other options before proceeding.
- Equity release is a lifelong commitment; some plans may have early repayment charges, which can be discussed with your advisor.
- Equity release can be a considerably high-cost form of borrowing if interest rolls up due to compounding. However, all plans allow you to make repayments so that you can control the roll-up of interest.
Common Questions
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In Conclusion
While there are additional ways to supplement your pension, as discussed above, equity release is also a viable option.
In addition, it allows you to release equity in stages if that suits you best.
When deciding how much you’ll need to supplement your retirement income, one thing to consider is whether there’s enough equity in it relative to the property’s value.
If not, it may be better to use other forms of equity, such as cash savings or shares.
Have a look at the equity release alternatives, and get in touch with your financial advisor to discuss whether equity release is the best way to supplement your pension.