Could equity release help fund your dream retirement?

If you are soon to retire, or have already retired, the cost of living crisis might be concerning to you.

Indeed, the UK’s economic circumstances – from a weak pound, to inflation reaching a 40-year high, to Ofgem’s increasing of the energy bill price cap – could be throwing your financial viability into question.

You may have already worked with your financial planner to assess and adjust your retirement income using cashflow modelling software. If you feel you might not have enough to meet your retirement goals, there is one option that could serve you well.

Equity release funds £1 in every £90 spent by retirees

Equity release, a process that allows you to liquidate capital from your property and use it to fund your lifestyle, is a common option for retirees. You must be 55 or over to be eligible for equity release.

Indeed, a study published by Mortgage Strategy, found that equity release funds £1 in every £90 spent by retirees in the UK.

There are two key types of equity release: a “lifetime mortgage” and “home reversion”.

A lifetime mortgage involves you taking out a loan against your home, but with no regular repayments involved. Instead, the loan accumulates interest over a period of years, the total value of which is deducted from your estate, typically when you pass away or move into long-term care. The loan is usually paid as a lump sum, or a series of lump sums.

Alternatively, home reversion allows you to exchange a portion of the ownership of your home for a lump sum.

For example, you could take £150,000 of your home’s value in cash, and in doing so, relinquish part ownership of your property to the scheme provider. When your home is sold, or you pass away, the provider recuperates their share.

Whichever type you choose, equity release could help fund your retirement – and for that reason, it is highly popular among those wishing to draw a sustainable later-life income.

3 ways equity release could help you achieve your retirement goals

If you have financial concerns when heading into retirement, here are three ways equity release could help you achieve your retirement goals and bring peace of mind.

1. You could remain in your home during your later years

Many retirees are faced with a difficult dilemma in their later years: sell their home and live the retirement lifestyle they want, or stay in their home and make sacrifices elsewhere.

If you choose to release equity from your home, you may not be required to make this hard choice.

By freeing up some of the capital held in your home in order to live comfortably in retirement, you could remain in your home while enjoying your later years.

2. Equity release could help shoulder the effects of inflation

If you are newly retired or on the cusp of finishing work, you might be worried about how inflation could affect your retirement fund.

Indeed, according to the Office for National Statistics (ONS), inflation reached 10.1% in September 2022. While the government and Bank of England (BoE) have made efforts to curb the rate of inflation, there is no guarantee this figure will return to the 2% target in the immediate future.

So, releasing equity from your home could provide you with a foundation of wealth that may make your retirement fund more sustainable in an era of high inflation, as well as providing essential peace of mind.

3. You may be able to afford later-life care for yourself and your loved ones

As the population’s life expectancy increases, so too may the demand for care. Unfortunately, a 2022 Canada Life study revealed that 7 in 10 over-60s had not begun budgeting for later-life care costs.

As of the 2022/23 tax year, anyone with assets worth more than £23,250 is required to pay for their own later-life care. This cap is set to rise to £100,000 in October 2023.

Care can cost many thousands of pounds, meaning when you reach your later years, you could incur financial stress if you’re not prepared. Equity release could help pay for these costs without placing financial pressure on your family.

It is wise to discuss your decision with your beneficiaries

One important thing to consider when releasing equity from your home is that, when you pass away, your beneficiaries will not inherit the full value of your property.

As we mentioned earlier, both forms of equity release require the loan, plus interest, to be repaid when your home is sold or when you die. The value of your estate will decrease by the amount you borrowed, plus any interest accrued, leaving less for your family to enjoy when they inherit your wealth.

So, when deciding on an equity release deal that works for you, it may be wise to inform your beneficiaries of this decision. This way, they can adjust their expectations accordingly, and avoid confusion or disappointment down the line.

Get in touch

If you are considering releasing equity from your home in retirement, it is important to consult a professional first. For expert guidance you can trust, email enquiries@prosserknowles.co.uk or click here to request a callback from one of our advisers.

Please note

Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.