How Can I Boost My Retirement Income with Equity release?

Do You Want To Boost Your Income During Your Retirement? Explore If and How Equity Release Can Help You, Along With The Alternatives…
  • Last Updated: 02 Feb 2024
  • Fact Checked
  • Our team recently fact checked this article for accuracy. However, things do change, so please do your own research.

Contributors:

Francis Hui

Key Takeaways

  • You can use equity release to boost your retirement income by unlocking the wealth tied up in your property, thus providing a tax-free cash lump sum or a regular income stream.
  • The benefits of using it for retirement income include tax-free cash, the ability to stay in your home, retaining ownership of your property, and no monthly repayments.
  • Equity release can be a good idea for increasing retirement income if you're over 55, own your home outright, and need a lump sum or additional regular income.
  • The risks of using it to increase retirement income include reduced inheritance, the potential for negative equity, and the impact on state benefits eligibility.
  • It works to boost retirement income by allowing you to borrow against the value of your home, which is then repaid, along with accumulated interest, when the home is sold, usually after your death or moving into long-term care.

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 golden years.

The possibilities are diverse, such as settling debts, helping out family, or going on a round-the-world cruise.

Or you could just keep it simple and use your equity release funds to stretch your pennies a little further 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 wants to help put your mind at ease with 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’s 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’s released.

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

    At Every Investor, we’re committed to maintaining the highest standards of accuracy and comprehensiveness. Our editorial team reviews and fact-checks all our 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.

    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, we can maintain our lifestyle without worrying about monthly mortgage repayments.

    It's 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 draining your pension pot. 

    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, while still enabling you to remain in your home. 

    Before considering this option, it's essential to seek professional financial advice from a qualified and FCA-regulated 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 by filling the gap between what’s coming in and what’s going out.  

    Many people are not willing to compromise their standard of living when they retire but also don’t have enough in their pension pot 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 2 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 pay back until you die 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, while retaining the right to live in your home rent-free.

    Let’s take 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. 

    Here are 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 don’t 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 won’t meet your retirement needs.

    If you’d 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 won’t 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’s best to check with your provider what its conditions are.

    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’ll be obliged to make monthly payments on these credit products.

    As an equity release loan would only be repaid upon your death 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 pot or incurring significant debt. 

    Most significantly, with a drawdown lifetime mortgage, you’ll only be charged interest on the money you withdraw; funds kept in reserve won’t 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.*

    The 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’d 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?

    So 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 haven’t saved enough to see them through their golden years.

    Let’s take 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 had to budget for 10 to 15 years of retirement; today, you may have to plan for 30 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’ll need to have saved between half and 2/3 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 pension pots, making it challenging to generate adequate income: In the current cost-of-living crisis, many pensioners are battling to make ends meet.

    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 won’t realise the full value of your home, the fact that equity release will reduce how much your heirs will inherit, and the fact that equity release can affect your benefits.

    Things to consider:

    • You’ll 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 dies or goes into care and your home’s sold, you may have rolled up quite a bit of interest, meaning less inheritance for your heirs.
    • The government uses a means test4 based on your capital, savings, and income to determine if you’re entitled to benefits. Your primary residence is normally excluded from these calculations, but if you release equity as cash, it’ll 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’t 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 pot is grown, taking into consideration how much risk you want to take, how long you’ve got till retirement, and whether you want to lock in the funds.

    A financial advisor will help you with the right choice.

    Investing

    Investing’s a riskier option, but if you’re working with a qualified financial advisor, you’ll 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 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’s 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’re 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’s 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 for you and your family. 

    By carefully weighing your options and considering 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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