Equity Release or Re-Mortgage to fund retirement?

ashpan

bostonerimus wrote: »

What is "high risk development"? I'm worried that you might have something silly here. More info would help.

There have been lots of good tax efficient suggestion about how to use 25% tax free lump sum to fund an ISA and personal allowances, but I think all the advice so far as assumed that you have some money in cash and the rest in a sensible equity and bond portfolio.

high risk investment not development!!!
i invested £51k in 2015 with MBI property (now NPD ) in a care home investment with returns starting 5 years later with 10% added - care home failed to develop so divested ( with NPD adding on £10k) into a hotel room, it was always a high risk for high returns but returns anticipated for december 2019,

Random47

Sell your house to the kids, statistically you'll live long enough not to warrant gov intervention.

ashpan

jamesd wrote: »

Please say more about this, notably the nature of the investment and where the money to fund it is coming from.
A high risk investment in a hotel, made in 2014

You don't seem to have a need for equity release to retire now. It's uncommon for normal mortgages to have repayment restrictions or penalties beyond five years. Normal mortgages to say 85 on interest only basis to say 85 are available, more on repayment basis and increased availability likely next year.

While you don't seem to need this money just to retire, you might want to consider using it to increase your potential income in retirement. Downsizing or relocating while still quite young are two possibilities. Those would also offer the potential of a place that might be better suited to possible reduced mobility later in life than where you are now. You're rather young for equity release but could plan to increase spending now and follow up with equity release to maintain that spending later.

As others have noted, this doesn't appear to be challenging since you have ample money to cover a shortfall of £500 pcm.

A general plan could start with taking the tax free lump sum from the pension and using this to fund ISA investing up to the annual limit for as long as possible. Place the rest into flexi-access drawdown and draw out the difference between your NHS pension and income tax personal allowance from this taxable 75% of the pension as well. That gets it out free of income tax, a nice benefit. With 11850 allowance and 6000 NHS pension that's 5850 out tax free and just 150 of your income need remaining. If your pension will still have money left after six years I suggest taking that from it as well, if it'll run out, stick to just the part within your personal allowance so you can get it all out tax free.
This sounds pretty sensible, my NHS pension is £620 before tax so that boosts me a bit more. What is a 'flexi-access drawdown' - can you explain please

With money outside the pension you might want to consider some peer to peer lending. Perhaps £20000 via Ablrate with perhaps 10% expected net interest after bad debt, raw rates typically 12% or 13%. And perhaps another £10000 via Unbolted, expect about 7% if you only use autolend, with no bad debt allowance needed. Ablrate can be done in their ISA while Unbolted offers no ISA but P2P interest is covered by both the personal savings allowance and the starting rate for savings, so no income tax would be due. That's another £2700 of likely but not guaranteed income.
Another good option, i have £2000 in peer-to-peer lending which has worked well so far so i would consider larger amounts

Perhaps a more interesting question for you might be what income you can have throughout retirement if you wanted more?


That starts out with you having or probably being able to get at least 8500 a year from the state pension. If your forecast isn't at least that much tell us and we can work out how to get there. NHS on top takes you to 14500 a year, 1208 a month.
My forecast is around £800 pcm state pension, i will also get another £250 pcm from my school pension plus a very small lump sum:rotfl:

Ignoring investment gains and tax you can also fund that from now, drawing on your 170k of private pension, ISA and savings. That would take 51000 to fund the amount beyond the NHS pension, leaving 119000.

One of several approaches to taking drawdown income from investments is called the 4% rule. In the US it's that if you take an income of 4% of your starting pot before costs, about 3.5% after, you wouldn't have run out of money even in the worst of times over the last 125+ years. The equivalent UK rate is 0.3% lower, so 3.2%. On 119000 that's another 3800 a year, increasing with inflation, taking you to £18300 a year. But that's from state pension age, not now, so you can't quite start that high because each extra 1000 costs you 6000 of capital until then and lowers the income potential by 192 a year. What is affordable is 3000 more, taking you to £17500 a year starting now.

However, if your life expectancy is normal you can do better still by deferring claiming your state pension. This causes it to be increased by 5.8% for each year it's deferred. Assuming yours is to be 8500 and you did this for five years you'd add 2465 to your guaranteed income and reduce your unguaranteed 4% rule income by 5 * 17500 * 0.032 = 2800 a year. That'd get you to a total income of 17500 - 2800 + 2465 = £17165 a year. Of that, 6000 + 8500 + 2465 = £16965 is inflation-linked and guaranteed for life. That's perhaps too much guaranteed because it drains most of your capital and because spending normally decreases as people get older. Two or three years of deferring might be a better balance of guaranteed or flexible income and keeping capital.

So that sort of income in the range of £17000 a year starting now is the sort of level that you might consider.

This is really helpful advice and a fair amount to digest, which i will do over the next few days, thank you so much for your help!!

jamesd

ashpan wrote: »

i got one last year so i doubt it will be much different, i think its around £180 per week for me at age 66 years

Good. That's above the single tier state pension cap so it won't increase except by triple lock on the portion up to the cap and CPI inflation for the rest. It won't be reduced to the cap, there's transitional protection that protects the extra.

Another 860 a year on top of my earlier figures. Each year of deferring adds 5.8% of the 9360, not of the 8500 I assumed.

jamesd

ashpan wrote: »

Would i need to have an income less thank £12k pa to avoid paying tax? I pay around £120 pcm tax on my NHS pension

No, just taxable income either within that or within that plus your personal savings allowance and starting rate for savings. Spending capital that's outside a pension is also tax free.

After you stop work and until you start taking your state pension this means that you'll probably have no income tax deducted.

Income tax isn't deducted from the state pension so when that starts you'll have the income tax from the combined NHS and state pensions taken from the NHS one.

ashpan wrote: »

i think ill look into this again, ive always been averse to drawing down from the private pension/ISA

That's often sensible until retirement but once retired it often doesn't apply. "often" because there are quite a few situations where doing something different can be best, but we'll mention any of those. The one that will apply to you is taking taxable money out of the pension to use your personal allowance each year.

Using ISAs in retirement remains a good move and taking money from an ISA should be near he bottom of the list, to do only after exhausting other things.

Given that taxes seem likely to increase, taking taxable money out of a pension to put it into an ISA can look like a good long term move. Even if that means paying some income tax at current rates.

You don't need to be retired to take the 25% tax free lump sum from a personal pension, just to be 55 or older. That's good to know because you're allowed to put up to 100% of your earnings up to 40k into a pension then promptly take out the 25% tax free. It's a nice trick to reduce your income tax bill while working.

jamesd

ashpan wrote: »

My house is way to big and pretty impractical but for now i want to try to stay until im more settled in myself - i realise its not the sensible thing to do but hey id really like to try !

You seem to have provided yourself with ample money so staying is fine.

One thing people here tend to have is the long planning horizons that come with retirement. Since reduced future mobility is possible, some favour moving while young. Others not all or later, or to relocate to their preferred part of the country or world.

You've provided so well for your self that the choices are yours to make, so simply do what you want. Though deciding on that isn't so simple sometimes. We've had people planing to sail all over the world and something like that is within your means if you want it.

MallyGirl

ashpan wrote: »

can you tell me more about a savings bond ladder please
im actually only working 3 days a week now for various reasons mainly as my work is so very stressful
ive never claimed any benefits and wouldnt know where to start, i guess my savings may exclude me from this but i will look into it for sure, thankyou for the suggestion!

A ladder works on the principle that you get a better rate the longer you tie up the money for.
Keep some money in instant access, put some in a 1 year fix, some in a 2 year fix, some in a 3 year fix and so on up to 5 yrs or whatever the max available. Each year a chunk matures - if you don't need it then put it in another 5 year fix so you have only a year till the next chunk is available but are getting the 5 year fixed rate on it all once you are rolling.

Bravepants

ashpan wrote: »

high risk investment not development!!!
i invested £51k in 2015 with MBI property (now NPD ) in a care home investment with returns starting 5 years later with 10% added - care home failed to develop so divested ( with NPD adding on £10k) into a hotel room, it was always a high risk for high returns but returns anticipated for december 2019,

What happens when (sorry if) the hotel room doesn't materialise?

Will they hang on to your cash or give it back?

Spreadsheetman

Bravepants wrote: »

What happens when (sorry if) the hotel room doesn't materialise?

Will they hang on to your cash or give it back?

I must get half a dozen scam property "investment opportunity" emails every day. Student flats, metro apartments, hotel rooms - all promising "high return, asset-backed investments".

Yeah, right. Great opportunity....for the people running the scams.

Alibert

You say "Equity Release or Re Mortgage "
but Equity Release is a Mortgage

I agree with others here, try not to take on a brand new debt