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Equity release: Making the most of a debt-free retirement
Many of us hope that once we reach retirement we will have put enough money to one side to enjoy a relaxing, stress free life. As we highlighted yesterday, even after a lifetime of hard work and prudent spending, retirees can find it difficult to make ends meet, often through no fault of their own.
After investing their hard earned money into pension schemes and annuities, retirees would have expected to see a healthy rate of return from these investments. However, stock market fluctuations and devaluations have wiped billions of pounds from pension fund values and ultimately reduced their returns.
This has had a knock-on effect on interest rates. The Bank of England base rate has now been held at 0.5% for 36 months. While borrowers benefit from the lowest rates in a generation, savers have seen the return on their investments plummet to a five year low.
The rising cost of day-to-day expenses has also hit pensioners hard. According to the advocacy group Age UK, many pensioners have experienced a cost of living rise of nearly 20% since 2008.
A much larger proportion of living costs now goes towards energy for the home. Gas prices have increased by 40% in the last five years and with the government lowering the winter fuel payments by as much as £200 many have taken on debt to survive.
According to the Prudential, nearly one in five pensioners now retires with debt. The StepChange Debt Charity Consumer Debt and Money report we released yesterday backs up this finding, saying:
“Middle-aged and elderly people will be increasingly affected by debt problems severe enough for them to need to seek help, highlighting the challenging financial situation that older households face.”
All of these inflationary issues mount up to high living costs and low incomes. For some less fortunate than the rest of us, redundancy, health care and death are also a contributor.
Those people in this situation who are lucky enough to own their homes equity release is a possible solution to meet this shortfall, to provide them with the money required to enjoy their retirement.
What is equity release?
This arrangement allows retirees to access their equity to fund home improvements, holidays, gifts to family, debt consolidation or to simply supplement their income.
However the decision to release equity from your home is a significant one and should not be taken lightly. You should only proceed with equity release if it is part of a long-term and sustainable retirement plan.
As we’ve said before, equity release is often an emotive and controversial subject. Having worked all our lives to clear our mortgages, it is understandable why we would find it difficult to accept having to place another loan on, or perhaps even having to sell a share of the family home. Children are also sensitive to anything which may impact upon any future inheritance.
However it’s essential that parents consider their own long-term needs. Both parents and children should seek specialist debt and financial advice before agreeing any arrangement.