There are some, however, who may end up with little in the way of pension savings but have considerable property wealth that they could use to supplement their income.
Here, we explain how you might use the equity in your property to achieve a comfortable retirement.
Equity release often overlooked
With property accounting for 40% of total household wealth in the UK, accessing this wealth is likely to be increasingly important for people looking to strengthen their retirement finances.
Just 7% of homeowners were presented with equity release as an option during retirement conversations with a financial adviser.
The research also found that misconceptions around equity release persist – 67% of people surveyed by Canada Life didn't know that you could still pass your home onto your children after you have released equity, and 63% didn't know whether you could move house after doing so.
How equity release works
The amount you can borrow depends on your age and how much your home is worth. You'll need to be at least 55, but the older you are the more you can borrow.
Exactly how much you can borrow will vary markedly between providers. Currently, at age 65 you'll typically be able to borrow a maximum of between 35% and 39% of the market value of your home, rising to between 40% and 44% at age 70.
Borrowers can opt to take a lump sum – where interest is charged on the whole amount at a fixed rate – or take chunks of cash when they need it, only paying interest on the money they've taken.
By spreading out the amount you borrow in this way (known as ‘drawdown’), you’ll reduce the impact of compound interest.
Is equity release right for you?
A lifetime mortgage can prove useful if you have value tied up in your property but are worried about having enough to live on in retirement, paying for care or funding large expenses.
You can use the tax-free cash for whatever purpose you choose and will be able to stay in your home for the rest of your life or until you move into care.
Arranging an equity release plan isn't a decision to be taken lightly. It can be very expensive, especially if you don't make any voluntary repayments. This means that the amount you can leave behind for loved ones will be reduced.
If you change your mind, repaying your loan early often triggers an early repayment charge.
Find out more:Could downsizing be the answer?
However, research from Hargreaves Lansdown shows that only 19% of people said they would consider moving to a smaller home in retirement.
When asked why they wouldn’t consider downsizing, 37% said they didn’t want to move anywhere smaller, and a further third said they were attached to their home.
Of course, there are also costs associated with downsizing that you'll need to consider – including stamp duty, estate agent fees and conveyancing costs.
Talk to an expert
Using your property to supplement your retirement savings shouldn't be a decision you take on your own.
You must take professional advice before releasing equity from your home, and it’s important to choose an adviser who specialises in this area. Advisers should hold one of the following approved qualifications:
Downsizing has considerable implications for your tax and retirement planning. If in doubt, you should speak to a financial adviser to make sure you have a sensible plan in place.
Find out more:source https://www.which.co.uk/news/article/the-property-decisions-that-could-boost-your-retirement-income-aM1bA6G6rXk9