Early Retirement & Equity Release in 2022

Retirement With Equity Release: Unrealistic or an Early Retirement Dream?
Contributors: Nicola Date, Katherine Read. Reviewed by Francis Hui
If You’re Thinking About Retiring Early, One of Your Top Priorities Will Be Coming up With a Way to Fund Your Retirement. One Idea That Many People Consider Is Equity Release – The Method of Using the Value of Your Home or Property to Generate an Income Stream in Retirement. We Discuss the Retirement Advantages With Equity Release Below.

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Are you wondering if you could take an early retirement with equity release?

The idea of retiring early is appealing to many people.

It’s the dream of relaxing on a beach somewhere while sipping on your favourite cocktail.

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

The good news is that there are ways to make it happen without having to reduce your lifestyle when you retire substantially.

We’ll take a look at how equity release might be able to help fund your early retirement dreams and provide more financial security than you ever thought possible.

Let’s find out now!

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

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

Well, there are some factors that you’ll want to consider before making any decisions.

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

However, this can be mitigated1 with proper planning on how much mortgage debt will remain after releasing equity from home property (if applicable).

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 consider investing in stocks yield more favourable results 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.

However, with proper planning and research, it’s possible to retire early without risking financial hardship in the event anything happens.

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

To calculate how much equity would be needed to fund your early retirement dreams, you’ll need to 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,

And then make adjustments depending on lifestyle factors such as travel budget or any luxury items during retirement.

Remember that there are many ways to use equity release funds post-retirement without making drastic changes about what type of life you hope for.

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.
  • The age, and if applicable, the age of your spouse.

The age at which your mortgage is due is an essential factor because it affects how long funds can remain in home property,

Without a mortgage and for what length of time you can continue to take out additional loans.

For instance, if your mortgage has been paid off,

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’ll have more money available to use as part of early retirement plans since it won’t need to go towards repayments on loan.

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’re a homeowner and considering using equity release funds to help fund early retirement,

You must plan so that the money can be used in ways that will provide the best return on investment3.

Why Could a Drawdown Plan Be More Appropriate?

A drawdown plan is also an option for those who want to retire early but don’t 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 while 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’s 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,

Making them ideal for those who want flexibility when managing their finances post-retirement.

Delaying withdrawal could also help fund your future dreams, such as grandchildren’s education expenses, traveling, or purchasing luxury items without sacrificing all else.

What Happens to Your State Pension When You Stop Working & Stop Making Contributions?

The state pension4 is a benefit available to all UK residents who reach 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.

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

Some people might want to delay their state pension so they have more money post-retirement.

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

It’s important to note that you might no longer be eligible for state benefits if you release equity from your home.

Your financial adviser 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 & Savings

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

In contrast, those who live on higher incomes may find 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 & Equity Release

If you consider taking equity release as part of your early retirement plan,

It might be worth first looking into drawing from your private pension funds at 55 (or earlier) if you have the means available.

This is because the state pension is taxable,

So 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 fund5 before 55.

In that case, this might be an opportunity to reassess how much is being taken out so that there’s more available for later on in life.

Also, remember that the state benefits system will provide some level of financial support post-retirement, but it may not be sufficient for your needs.

This could lead to relying heavily on family or friends, which can cause stress and strain.

If you do have private benefits, likely, you wouldn’t need equity release for your retirement.

However, you could still release the funds to go on a dream trip or buy desired luxury items.

Common Questions

Can Equity Release Cover All the Costs Associated With Early Retirement?

Is There Risk Involved in Taking Out Equity Release to Fund Early Retirement?

What's the Best Way to Plan for Early Retirement?

What Are All of the Different Types of Equity Release Products Available That Can Fund Early Retirement?

In Conclusion

If you are considering early retirement, equity release can be a great way to fund it.

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

You might find that an early retirement with equity release could give you everything you need in one package!

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Editorial Note: This content has been independently collected by the SovereignBoss advisor team and is offered on a non-advised basis. Sovereignboss may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.

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