If you are wondering whether it is possible to release equity to fund an early retirement, the good news is you can!

The idea of retiring early is appealing to many people.

It is the dream of relaxing on a beach somewhere while sipping on your favourite cocktail that may get you excited.

However, this dream can quickly turn into a nightmare if you do not plan for retirement and do not have enough money saved to support yourself.

As equity release experts, we are here to guide you on how equity release may be able to help fund your early retirement dreams and provide more financial security.

Therefore...

Is Using Equity Release to Help Fund Early Retirement a Good Idea?

It may sound like a great idea to use equity release to help fund your retirement, but is it?

There are some factors you need to consider before making any decisions.

There is the obvious risk of not having enough money left over during retirement if anything should happen or an early death occurs.

However, this can be mitigated¹ with proper planning on how much mortgage debt will remain after releasing home equity.

A second factor would be determining what investments will provide the best return for funding your dreams post-retirement.

For instance:

• Will buying another house or investing in stocks yield more favourable returns than using equity release funds?
• What kind of lifestyle do you hope for when retiring?
• What are the expected costs of retirement?

These are just a few questions that need to be considered before releasing equity from your home.

How Much Equity Do You Need to Release to Retire Early?

To calculate how much equity you need to fund your early retirement, you must add up all of the following:

• The amount that needs to be released from the equity in your home property.
• Typical monthly living expenses (housing costs, food, health care) after retiring.

Use this number as a starting point for calculating how much equity would be needed.

Thereafter, make adjustments depending on lifestyle factors such as travel budget and any luxury items you may want during retirement.

Remember, there are many ways to use equity release funds post-retirement without making drastic lifestyle changes.

How Much Equity Release Can You Achieve?

The amount of equity that you can release will depend on a few factors:

• The valuation² of your property.
• The condition of your health.
• Your age, and if applicable, the age of your spouse.

Another consideration is that if your mortgage has been totally repaid, there will no longer be any remaining debt after releasing the equity from your house or other properties that are not mortgaged.

This means that you may have more funds available to use as part of early retirement plans since it will not need to go towards mortgage repayments.

The less debt you owe post-mortgage when using equity release funds, the more is left over with each payment to use for your retirement.

If you are a homeowner that is considering equity release to fund early retirement, you must plan so that the money can be used in ways that will be most beneficial.

Why Could a Drawdown Plan Be More Appropriate?

A drawdown plan is also an option for those who want to retire early but do not have enough equity in their home property or other properties that are not mortgaged.

Withdrawal from a drawdown plan can be made over any number of years, and the amount withdrawn will depend on the participant's age, how long they have been drawing down for, and what the interest rates are.

This will ensure that you can enjoy a more comfortable retirement whilst still being mindful of your financial needs in old age.

The amount withdrawn from these plans is not subject to tax, depending on eligibility criteria.

So, it is possible to use this as an option if taxes are holding back your early retirement dreams.

Drawdown schemes can be tailored towards individual needs or preferences.

This makes them a viable option for those who want flexibility when managing their finances post-retirement.

What Happens to Your Means-Tested Benefits When You Stop Working and Stop Making Contributions?

Means-tested benefits affect UK residents who have reached the age of 65.

The amount can vary depending on how much has been contributed and how long, but typically it will be around £170 per week* or more once you stop working.

* This is for indicative purposes only.

If you are considering using your equity release funds as part of an early retirement plan, then there are many considerations to think about.

Some people may want to delay their benefits so they have more money post-retirement.

In contrast, others may not wish to benefit from the government to fund their future dreams.

It is important to note that you may no longer be eligible for means-tested benefits if you release equity from your home.

Your financial advisor will be able to provide you with the appropriate information on the matter.

Whatever decision you make, you should always think carefully with your future in mind.

The Impact of Equity Release on Your Income and Savings

If you have a low income and limited savings, it may be best to keep your equity release funds to use for daily expenses.

In contrast, those who benefit from higher incomes may find that they want their retirement plans to include using their equity release funds as part of an early retirement plan.

If you have an existing mortgage, you will need to use some of the equity released to settle that debt.

Whatever you do, be sure to look at all the equity release alternatives before making your final decision.

Funding Your Retirement With Your Private Pension and Equity Release

If you consider taking equity release as part of your early retirement plan, it may be worth first looking into drawing from your private pension funds at 55 (or earlier) if you have the means.

If you can take out a large sum before age 55 and use that to supplement any income shortfall post-retirement, this could help provide more financial security.

Alternatively, suppose you are already drawing from a private pension fund³ before 55, this may be an opportunity to reassess how much is being taken out so that there is more available for later on in life.

If you do have private benefits, you may not need equity release for your retirement. It is best to consult a reputable financial advisor beforehand.

Common Questions

In Conclusion

If you are considering early retirement, equity release can be a good way to fund it if done properly.

Equity release is an attractive option for people who have not yet repaid their mortgage and would like to retire without any outstanding debts or responsibilities.

You may find that an early retirement with equity release could be the solution you have been looking for.