Retirement income advice.

nellienellie

My husband and I are due to retire soon. We will only have the basic state pension, and a very small private pension of around £50 week. We own two properties outright, the house we live in, and the house my Father lives in, rent free, and will do so for the remainder of his life. We are looking at the best options to raise some cash to subsidise our retirement income. As our house is small downsizing is not really an option and we will not share a house with my Father. Equity release scares us a bit, but we wonder if this would perhaps be the way to go. Any advice would be welcome.

dunstonh

If you didnt have the investment property then you could possibly qualify for pension credits.

How is it you own the house your father lives in rather than him?

McKneff

Have you had a pension forecast, full state pension is over £420 a month for each of you so say £840, plus £200 private pension,
giving you over £1k a month to live on. How much do you actually need to live on.

Possibly some SP2.

zygurat789

If you are near retiring your father can't be that young and he may not be able to live in the house for the rest of his days, so you owning it may be a good thing.
Did you both pay full NIC or do you pay the married woman's rate?

nellienellie

dunstonh wrote: »

If you didnt have the investment property then you could possibly qualify for pension credits.

How is it you own the house your father lives in rather than him?

We bought the house for my parents many years ago, and as our financial circumstances were different then, we promised they could live rent free for the rest of their lives. My father is early eighties and I would never dream of going back on that promise to him. When you are in your 30s and 40s retirement seems such a long way off, and with many changes to our lives, we know now we should have done things differently, however we need to sort things for ourselves as best we can for the near future.

jamesd

One thing to know about the house your father is living in is that if it was given to you to avoid inheritance tax the fact that he's not paying rent will mean that inheritance tax is payable unless he lives for at least seven years after the gift. I'm assuming that at one point it was owned by him, may not be the case.

For you the ownership of the house is probably going to mean that you are expected to take income from it and will be presumed to be taking that income even if you aren't actually taking it.

The age and health - and hence life expectancy - of your father are significant to your planning. You could consider equity release on your own home and plan to repay that with proceeds of the sale of the property your father is living in.

You also need to consider what will happen if your father ends up needing residential care, about a one in five chance with time in care in the two to three year range typically. Cost of perhaps £25-30,000 a year. Assuming he has no or minimal assets the local authority will pay.

There are still some lenders who may be willing to lend on a property with sale of property the intended way of repaying the mortgage. It's worth discussing with a mortgage broker whether this may be possible for either the property your father is living in or the one you are living in. The potential advantage is that a normal mortgage will have a much lower interest rate than an equity release mortgage. If this was possible with an offset mortgage you could steadily draw on the loan amount to subsidise your income until you're able to sell the property. You could do the same with a non-offset mortgage but the offset would save interest.

A small house isn't necessarily an obstacle to downsizing because that can include things like moving to a cheaper area and/or to a property that will be easier to manage if you later have difficulty with things like climbing stairs.

nellienellie

Thank you Jamesd, The house was never owned by my parents,it was bought by us for them. We realise now we should have done things very differently,(hindsight being a wonderful thing). It's just a case of trying to sort it all out now so we can have some extra cash to supplement our state pension.

McKneff

Like I asked - How much do you need to live on a month

nellienellie

Hi McKneff, We do not have a set amount in mind on a monthly basis, I am sure we can get by on our pension, but feel we would like to have some free cash for holidays, weekends etc. while we still have the health to enjoy it.

McKneff

If you cost it all out, you'll find you have plenty spare for holidays etc.

Have you sat down and actually done an income and expenditure sheet. You may not need to do anything.

I just retired last August. We have about £11oo a month, bills are around £300, leaving £800 a month to call our own. Food around £300, leaving about £500 a month, We go away often for 5 days, weekends, 2 weeks holiday in summer, no problem. We eat well, maybe you are overthinking it all.

Good luck
Annie

nellienellie

Hi Annie, You are probably right, I think I am worrying a bit much. No doubt we will be fine, we are not big spenders so hopefully will be able to budget and live fine on our pension.