Are you looking forward to your retirement or could equity release help?
If you are looking forward to the day you retire but are a little – or a lot – concerned about how much money you may have to live on, read on, because it might not be too late to do something about it.
Most of us are looking forward to the time in our lives when our days do not revolve around imminent deadlines and rush hour travel. Retirement should be a time when we can relax, travel or take up a new hobby and reap the rewards of years of hard work.
Unfortunately this is not the case for many pensioners today. Lower investment returns, poor annuity rates and increasing life expectancy are resulting in many individuals reaching retirement with far less income from their pensions than expected. Those trying to live on limited or fixed incomes have seen their outgoings increase dramatically - and it doesn’t look like there is positive change on the horizon.
However well you’ve done your retirement planning, there are some things you cannot predict
This situation has arisen for a number of reasons. Firstly there has been a significant rise in inflation, which is currently up at 4.7%*. This has meant the cost of living has shot up, with food costs increasing over 14.5%** in the last year alone, as well as escalating gas, electricity and fuel prices.
Many pensioners today were also hit by the pension crisis of the late 1990s. A lot of companies moved from the more generous occupational schemes and replaced them with money purchase schemes. Not only this, but they also contributed far less to these funds than before.
Using your property to release equity
Luckily the future is not completely bleak. There are options out there for homeowners which can help reduce these financial burdens and also assist with their future retirement planning. For most people over the age of 55, their property is likely to be their biggest asset. Although there is the option of selling the family home and downsizing, many do not want the stress and hassle associated with this. Another option is to release equity from the property, allowing access to a lump sum. This is where equity release can help.
An equity release scheme lets you raise money from your property – as either a lump sum or regular income, or both – and at the same time gives you, and a partner, the right to remain living in your home until you both die or choose to move out.
There are two types of equity release scheme available in the market today
Lifetime mortgages involve taking out a new loan, secured on your home, where you don’t have to pay anything back – the loan interest rolls up and is paid to the provider when the home is sold or you die.
Home reversion plans involve selling all, or part, of the ownership of your home at a discount but you can live in the property for the rest of your life.
However, Retirement Plus offers customers equity release home reversion plans which are different. They will buy a right to own a share of your home for its market value and you can continue living in your home for the rest of your life. Every month their percentage share in your property will increase at a fixed rate, set at the time you take out one of the Property Plans, up to an agreed maximum and your share in the property will decrease. When you die, the property will be sold and they will deduct their share of the money received from the sale and the costs of sale, before paying any remaining funds to your estate.
Full information can be found on the individual equity release providers’ websites. For a full list of FSA regulated equity release providers see http://www.ship-ltd.org/ – Members Directory
If you are concerned about your retirement income then contact a financial adviser, who has the appropriate FSA qualifications, to advise on how equity release could work for you.
To find a financial adviser who can explain equity release to you, please check the following websites: http://www.adviserslist.co.uk/ or http://www.unbiased.co.uk/
* Consumer Price Index. August 2008
**Government Office for National Statistics