How Can I Boost My Retirement Income with Equity Release?

Equity release can supplement retirement income by converting home equity into cash, providing financial flexibility. It's an alternative to traditional retirement planning methods.
  • Last Updated: 15 May 2024
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How Can Equity Release Boost My Retirement Income? Explore If and How Equity Release Can Help You, Along With The Alternatives...
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Key Takeaways…

  • Access the wealth in your home with equity release to boost retirement income through a tax-free cash lump sum or a regular income stream, receiving financial flexibility without the need to sell your property.
  • Equity release funds your retirement by borrowing against your home’s value, repaid with interest from your property’s sale upon your passing or move into long-term care.
  • Enjoy the benefits of a solid income boost: stay in your home and retain ownership, receive tax-free cash, and make no monthly repayments, but also look out for the risks of potential reductions in inheritance and possible effects on eligibility for state benefits.

Using equity release to boost retirement income is becoming an increasingly popular option for seniors wanting to maintain their standard of living and enjoy their latter years.

The possibilities are diverse, such as settling debts, assisting family, or long dreamed of vacations.

Or you could just keep it simple and use your equity release funds for additional income every month; just keep in mind that accessing equity in your home may have long-term implications for your financial situation.

In This Article, You Will Discover:

    The team at Every Investor has produced this comprehensive guide to planning your later-life finances when your are wondering, “Should I use equity release?”

    Our goal is to provide a comprehensive guide on boosting your retirement income using equity release, helping you make informed decisions and secure your family’s financial future.

    This guide is based on extensive research of the latest equity release news and developments, and all our content undergoes extensive quality checks and financial compliance moderation before it is released.

    This article was researched and written by a team of financial experts, without the use of AI assistance.

    At Every Investor, we are committed to maintaining the highest standards of accuracy and comprehensiveness. Our editorial team reviews and fact-checks all content, and we regularly update our articles to ensure they remain current and relevant.

    Read on to find out exactly what you need to know about boosting your retirement income with equity release.

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    Enhancing Retirement Income via Equity Release

    What Are Equity Release Mortgages?

    Equity release mortgages, tailored for individuals over 55, allow you to liquidate a portion of your home’s equity.

    It is a solution for those seeking to bolster their financial resources without downsizing.

    The process involves either a lifetime mortgage, which is essentially a loan secured against the home, or a home reversion plan, involving the sale of a property share, with repayment deferred to a later stage.

    How Can Equity Release Boost My Retirement Income?

    Equity release, primarily known as a lifetime mortgage, can provide a measurable boost to your retirement income. By unlocking the value tied up in your property, it ensures a steady stream of income without having to sell your home.

    This method could be particularly beneficial if your property’s value has significantly increased since you bought it. Using this option, you can maintain a lifestyle without worrying about monthly mortgage repayments.

    It is a unique way to supplement a pension, enabling retirees to live comfortably; however, always consider the potential impact on inheritance and eligibility for means-tested benefits.

    Making informed decisions with professional advice is vital in managing retirement finances successfully.

    Could Your Home Be Worth More Than Your Retirement Savings?

    Your home could be worth more than your retirement savings. 

    Many UK retirees have more value in their homes than in their pensions as the UK housing market continues to surge. 

    As a result, tapping into the equity built up in your home can provide an alternative or supplementary source of retirement income, allowing you to maintain a comfortable lifestyle without using up your pension. 

    How does that work?

    Equity release schemes, such as lifetime mortgages or home reversion plans, offer a tax-free way to unlock the wealth tied up in your property, whilst still enabling you to remain in your home. 

    Before considering this option, it is essential to seek professional financial advice from a qualified and FCA-authorised advisor to ensure that you fully understand the potential costs and benefits associated with equity release.

    How Could Equity Release Products Boost My Income in Retirement?

    Equity release could boost your income in retirement by allowing you to supplement your income, top up your pension, and reduce your monthly outgoings, though this will depend on individual circumstances and specific financial products chosen.

    Essentially, equity release products can boost your retirement income, assisting with any shortfall between income and expenditure.  

    Many people are not willing to compromise their standard of living when they retire but also do not have enough in their pension to meet that expectation.

    Equity release could provide a comfortable buffer, either through a lump sum payment or the availability of a drawdown facility.1

    There are two main options

    There are two main types of equity release products: Lifetime mortgages and home reversion plans. 

    Lifetime mortgages are loans secured against your home, which you do not need to repay until you pass away or move into long-term care. 

    Home reversion plans involve selling all or part of your home to a provider in exchange for a tax-free lump sum or regular payments, whilst retaining the right to live in your home rent-free.

    A closer look at your options…

    Use Equity Release to Supplement Your Retirement Income

    You can use equity release to supplement your retirement income in various ways. 

    Some options you may want to consider…

    • Use your drawdown lifetime mortgage as a way of accessing additional funds when you need to stretch your pension a bit further.
    • Use your equity release funds to generate a passive income by purchasing a buy-to-let property.2
    • If you do not want to stop working just yet, use your equity release as start-up capital for your own small business.

    Use Equity Release to Top Up Your Pension

    You can use equity release to top up your pension if you know your existing pension fund will not meet your retirement needs.

    If you would like to bolster your pension, you can take out a drawdown lifetime mortgage and hold part of your equity release funds in reserve.

    How does that work?

    If you take out this type of lifetime mortgage, a portion of your funds will be paid to you as a tax-free lump sum upfront, and the rest can be held in reserve for you to draw from as and when you need to.

    One big advantage

    The major plus of keeping funds in reserve like this is that you will not be charged interest on that money until you access it.

    This could save you a lot of compound interest over the duration of your plan.

    Most plans allow a minimum withdrawal of £2,000 per transaction, but it is best to check with your provider’s terms and conditions.

    Remember…

    The effectiveness of this strategy will depend on your financial circumstances, the amount of equity available, and the specific product chosen.

    Use Equity Release to Reduce Your Monthly Outgoings

    You can use equity release to reduce your monthly outgoings in retirement. 

    Entering retirement with outstanding debt like a mortgage, car payments, or credit card debt can severely limit your disposable income, as you will be obliged to make monthly payments on these credit products.

    As an equity release loan would only be repaid upon your passing or if you go into long-term care, you could use it to pay off your existing debt and eliminate the need to make any more monthly payments in retirement.

    How Do You Create a Monthly Income With Equity Release?

    You can create a monthly income with equity release by opting for a drawdown lifetime mortgage, but be aware that interest rates and fees may apply, impacting the long-term value of your home.

    By choosing a lifetime mortgage with a drawdown option, you can access the equity in your home as a tax-free cash reserve. 

    This enables you to withdraw smaller, regular amounts as needed, effectively creating a monthly income to supplement your pension. 

    Remember that the actual income generated will depend on your home’s value, interest rates, and other factors.

    Why may I consider this option?

    This approach allows you to maintain a comfortable lifestyle without the risk of exhausting your pension or incurring significant debt. 

    Most significantly, with a drawdown lifetime mortgage, you will only be charged interest on the money you withdraw; funds kept in reserve will not attract any interest. 

    The interest rates for equity release products typically range from 3% to 6%, depending on the provider and the specific plan chosen.*

    Bottom line

    The flexibility of a drawdown lifetime mortgage empowers you to decide when and how much to release, providing you with greater control over your retirement finances. 

    *These rates are provided for indicative purposes only. While we continually update our interest rates information, these rates may have changed our last update.

    Who Can Use Home Equity to Boost Retirement Income?

    Anyone who owns their own home worth more than £70,000 in the UK and is over the age of 55 can use home equity to boost retirement income through equity release.

    These are the basic requirements when applying for equity release, but lenders may have additional criteria that must be met if you want to be approved for an equity release plan.

    If you would like to learn more about your eligibility, speak to a qualified equity release broker or advisor.

    Why Are So Many People Looking for Extra Money for Retirement?

    Many people are looking for extra money for retirement because of the rising cost of living, the fact that people are living longer, and the reality that many older Britons have not saved enough to see them through their senior years.

    A closer look at some of the factors causing the growing interest in alternative retirement income sources (like equity release): 

    • Rising life expectancy means UK retirees are spending more years in retirement, necessitating additional financial resources to maintain their quality of life: Fifty years ago, people only need budget for ten to fifteen years of retirement; today, you may have to plan for thirty years or more.
    • The erosion of traditional pension provisions, such as the decline of defined benefit pension schemes, has led to increased reliance on personal savings and investments, which may not be sufficient to meet retirees’ financial needs: You will need to have saved between half and two-thirds of what you earned in your lifetime after tax to retire comfortably.3 
    • Factors like inflation, low interest rates, and unpredictable economic conditions can impact the value of pensions, making it challenging to generate adequate income: In the current cost-of-living crisis, many pensioners could be struggling battling to meet their expenses.

    Given these challenges, increasing numbers of retirees are considering alternatives such as equity release to enhance their pension income and ensure a comfortable, financially secure retirement.

    Are There Drawbacks to Using Equity Release to Boost Retirement Income?

    Yes, there are drawbacks to using equity release to boost retirement income, including the fact that you will not realise the full value of your home, the fact that equity release will reduce how much your heirs will inherit, and that equity release can affect your benefits.

    Things to consider…

    • You will normally only be able to access 20-60% of the value of your property than if you sold it on the open market. (The amount of equity available to you will also depend on whether you have an existing mortgage on your home.)
    • Because equity release is traditionally only settled when the last borrower passes away or goes into care and your home is sold, you may have accrued significant interest, meaning less inheritance for your heirs.
    • The government uses a means test4 based on your capital, savings, and income to determine if you are entitled to benefits. Your primary residence is normally excluded from these calculations, but if you release equity as cash, it will be regarded as savings and could take you over the benefits limit.
    • Some equity release plans may have high interest rates, which can increase the total amount owed over time. 
    • There can be significant upfront costs associated with setting up an equity release plan, such as arrangement fees, valuation fees, and legal fees.

    With these drawbacks in mind, there are alternative financial strategies to consider for retirement.

    What Are Some Alternatives to Pensions?

    Some other alternatives to pensions include an Individual Savings Account (ISA), a Self-Invested Personal Pension (SIPP), and investing.

    Besides a state or workplace pension, you can plan for your retirement with one of these financial instruments.

    ISAs

    There are different types of ISAs, but if you invest in a lifetime ISA, you can not withdraw the money unless you want to buy a house, are aged over 60, or have a terminal illness.

    SIPP

    A SIPP allows you to control how your pension is grown, taking into consideration how much risk you want to take, how long you have until retirement, and whether you want to lock in the funds.

    A financial advisor will help you with the right choice.

    Investing

    Investing is a riskier option, but if you are working with a qualified financial advisor, you may be able to spread the risk.

    Typical investments would be stocks, shares, and property.

    Common Questions

    Can I Be Denied Equity Release Even if I Have the Right Documents?

    What Documents Do I Need for Proof of Identity and Address?

    Why Do Providers Require a Building Insurance Schedule?

    Will I Need to Provide Bank Statements?

    What is the Purpose of Property Title Deeds?

    Should I Submit a Mortgage Policy and Secured Loan Documents?

    Why Do Providers Need My Solicitor and Estate Agent's Details?

    Do I Need to Provide Occupier Documentation?

    Is Leasehold Documentation Required for Equity Release?

    What Is the Full Equity Release Application Process?

    Who Holds the Property Title Deeds With Equity Release?

    Does Equity Release Require a Damp and Timber Survey?

    How Can I Use Equity Release to Boost My Retirement Income?

    What Are the Benefits of Using Equity Release for Retirement Income?

    Is Equity Release a Good Idea for Increasing Retirement Income?

    What Are the Risks of Using Equity Release to Increase Retirement Income?

    How Does Equity Release Work in Boosting Retirement Income?

    In Conclusion

    If you are looking for additional sources of income during your retirement years, equity release can be a viable option to consider. 

    By unlocking the wealth tied up in your property, you can supplement your pension income and maintain a comfortable lifestyle without depleting your savings.

    It is important to ensure that you have a good understanding of the risks and rewards associated with equity release so that you can make an informed decision about the best course of action for you and your family. 

    By carefully considering your options and onboarding the right information and advice, you can confidently explore the potential of equity release to boost retirement income and secure a more financially comfortable future.

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