Using Your Home To Fund Your Retirement

Lack of adequate retirement planning is just one reason why thousands of over 50’s are having to use their property to fund their retirement, according to recent research. It has been estimated that around 35% of UK workers do not have any sort of private or company pension, and thus will be relying solely on the state pension when they retire. Of those who are saving for retirement, many are not saving enough to fund their expected standard of living in retirement. For example, to get an annual retirement income of £22,000 (which is the current average salary in the UK) a retiree would need to save a pension pot of around £450,000.

Faced with the stark reality that they will not have enough to live on in retirement, many over 50’s are therefore planning to use the equity in their property as a means of funding their retirement. Recent research form LV= suggested that around a third of all people in this age bracket are planning to do this. The most common way to release the value tied up in a property is to opt for equity release, whereby the home owner can receive a cash lump sum in exchange for the equity (full or part) in their home (called home reversion). Under home reversion the equity release provider takes legal ownership of the property. The other option to release equity is to choose a lifetime mortgage, which is basically a loan taken against the value of the property. The repayments are made once the property is sold, such as when the owner passes away or goes into long term care.

Both options have their advantages and disadvantages, but what they both avoid is the need to downsize. Of course by doing this you cannot bequeath the property you may have worked all your life for, but in these extraordinary tough economic times, many simply will not have any other choice. Your home is normally your one main asset, and if the mortgage has been paid off it is often the most suitable way of supplementing your retirement income.

Source: http://www.annuity-rates.org/using-your-home-to-fund-your-retirement-2578/