Planning For Retirement | moneyfacts.co.uk

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Derin Clark

Derin Clark

Online Reporter
Published: 01/09/2021

Workers today will have lower pension income on average than some earlier generations a report from the Equity Release Council has found, which means that in the future retirees will likely need more than just their pension savings to boost their retirement incomes.

Even those looking to retire in the near future may find that changing jobs multiple times and not starting a pension fund until later in their career, as well as the move away from generous defined benefit pensions to defined contribution schemes, has resulted in workers having less money in their pension pots compared to the previous generation.

Add to this the recent economic turmoil caused by the global pandemic that has seen the Bank of England base rate cut to an all-time low of 0.1% and stock market volatility, even those who have managed to save a good pension pot may find they have less than they initially anticipated.
As such, when planning for retirement it may be a good idea to consider boosting pension incomes through alternatives rather than just relying on pension savings.

Using property to boost your retirement income

The most valuable asset many consumers own is their home which, as property prices continue to rise , could become a key part of their retirement planning. There are several ways retirees can use the equity they have built up in their homes to boost their retirement income.

One way is through equity release, which allows homeowners to release equity in their home through an equity release loan that does not need to be repaid during their lifetime unless they move into permanent care. This way of releasing equity from property is proving popular with consumers as, according to the Equity Release Council, between April and June this year, homeowners aged over 55 unlocked £1.17 billion of property wealth through equity release. In order to meet demand from consumers, over the last few years the equity release market has responded by increasing the number of deals available to homeowners. This has resulted in more flexibility in the type of equity release plans available, with many plans now offering drawdown, as well as the option to make partial repayments or interest repayments.

Despite the advances within the equity release market, taking equity release still has a long-term impact on finances. One of the biggest impacts is on the inheritance the homeowner leaves behind. Not only does the equity release loan have to be repaid when the property is sold, but interest is also added to the debt which can significantly increase the amount that has to be repaid. As such those hoping to leave behind a large inheritance to loved ones may want to consider alternative options when looking to boost their retirement incomes.

Due to its financial impact, those considering equity release should speak to an independent financial adviser first to ensure that it is the right option for their needs and personal circumstances.

Another option available to retirees looking to boost their retirement incomes is by downsizing. Selling their current home and downsizing to a smaller, cheaper property will often allow homeowners to free-up a lump sum of money that they can use towards boosting their retirement incomes. Homeowners who choose this option may automatically consider putting the money gained from selling their home into a savings account, but with saving rates still low and the risk of rising inflation, savers may want to consider investing the money instead, for example by using it as a deposit on a buy-to-let property. Investing comes with risks, however, so those thinking about investing to boost incomes may want to consider speaking to a financial adviser who will be able to discuss options, as well as highlight the risks involved.

Seeking retirement advice

With multiple options available to those looking for more than just their pension savings when funding their retirement, it is important that consumers get advice about which options are best for them. Although consulting with an independent financial adviser may have up-front costs, in the long run getting professional help and advice may prove cost-effective as consumers are able to maximise the returns they gain from a lifetime of building up assets and wealth.

Free independent financial advice

Readers of Moneyfacts.co.uk with a minimum of £100,000 in savings and investment can get a free one hour pension consultation with independent financial advisors Kellands. Click here to find out more about this offer.

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