Equity Release to support earlier retirement

collinsca

Hi

I am seeking opinions/experience on equity release, predominantly, to understand whether earlier retirement is possible, and if so, how much by.

Currently 20 years off retirement as it stands, but I am doing some data crunching to work out my 'NUMBER' (as per the popular thread), and equity release could impact that significantly.

My wife and I are in our late 40s (me 46, her 49).  We own a house, currently valued at 350k.  We are about 3 years away from paying off the mortgage.

We will both be eligible for full state pension.

My wife's other pensions are minimal (and so best to leave out of any calculations).

I have:

- a DB that will give £24k (or lump sum = 117778.43 and £18k) a year from age 60 and 

- a DC that (mid-rate avg) will provide a further £29k a year from age 65.

We do not have any dependents to pass on to, so our beneficiaries are currently charities.

I'm keen to understand if the idea of equity release is a sensible idea in our scenario?

What the process is...

How much we might get (*and therefore how much earlier we could retire).

*appreciate 'THE NUMBER' is key here also.

Thoughts appreciated!

Any more info that is required to support this then let me know!

Many thanks

tacpot12

Equity release is certainly an option from age 55, but you will incur a lot of interest and this may reduce the potential to use your home to pay for care in later life. I would be looking at the idea of saving more now and working until say 57, so that you can live off your savings between the ages of 57 and 60. This completely avoids having to tie the house in equity release. You really need to know how much income you need to live on when you are retired. You also need to be honest about the amount of discretionary spending you want to make in retirement to make the most of your healthiest years.

Linton

ER certainly worth considering if your have no-one to whom you want to leave your house.  It is possible  from around 55 but the amount that can be released is dependent on your age.  Taking it early means you get less and the interest mounts up for longer than if you delay.  Also as said by @tacpot12 it could seriously reduce your flexibility in later life. So it could be better to use savings in early retirement and consider ER later.

You could talk to an independent ER advisor to help get the balance right.  You must anyway to take ER

Bighitter32

Alternative option is downsize and future proof accommodation needs (ease of access/egress, layout, garden size, efficiency ratings etc). Equity released can be put to work if needed and process is simple and fully controlled by you.

Albermarle

 a DC that (mid-rate avg) will provide a further £29k a year from age 65.

Presume you are aware that you can access any DC pension, earlier than 65?
Currently 55, rising to 57 soon.

Marcon

collinsca said:

Hi

I am seeking opinions/experience on equity release, predominantly, to understand whether earlier retirement is possible, and if so, how much by.

Currently 20 years off retirement as it stands, but I am doing some data crunching to work out my 'NUMBER' (as per the popular thread), and equity release could impact that significantly.

My wife and I are in our late 40s (me 46, her 49).  We own a house, currently valued at 350k.  We are about 3 years away from paying off the mortgage.

We will both be eligible for full state pension.

My wife's other pensions are minimal (and so best to leave out of any calculations).

I have:

- a DB that will give £24k (or lump sum = 117778.43 and £18k) a year from age 60 and 

- a DC that (mid-rate avg) will provide a further £29k a year from age 65.

We do not have any dependents to pass on to, so our beneficiaries are currently charities.

I'm keen to understand if the idea of equity release is a sensible idea in our scenario?

What the process is...

How much we might get (*and therefore how much earlier we could retire).

*appreciate 'THE NUMBER' is key here also.

Thoughts appreciated!

Any more info that is required to support this then let me know!

Many thanks

I'm a big fan of forward planning, but I think you are looking at this a bit too early. There are so many unknowns that it's pointless to speculate too much while you are only in your 40s. That said, it does sound as if some proper (paid for!) financial advice from an independent adviser might be no bad idea, perhaps to look at options such as drawdown from your DC pot to delay the need for ER. There really isn't a 'NUMBER', however popular the thread!

LHW99

My wife's other pensions are minimal (and so best to leave out of any calculations)

It would be worth ensuring she has at least enough to use her personal allowance for at least several years. With the 25% tax free, she could access something over £16k pa before having to actually pay tax.

collinsca

Thanks to everyone for the response – appreciated.

 

Some responses to the comments and questions:

 

Re looking at this too early – I nearly said in the OP that I appreciate this is likely the case.  My mindset has always been to save and overpay into pension and just see what the situation is around age 55. I’m aware that regulations and practices change and my planning could be trumped and irrelevant.

Equally though, I felt, if I ignore the ER option then I could spend the next 20years saving and paying too much into my pension, rather than enjoying the money (if I could get a significant amount out of ER)!

 

Re ‘THE NUMBER’ – I appreciate this is very particular for an individual/couple and that realistically it is impossible to really know the exact amount that would make you comfortable retiring.

Recently I have had conversations with retirees who have said “wish I’d retired earlier, and I could have”; and for that reason, I thought it would be good to have a ballpark at least.

I appreciate taking the DB early retirement impacts the value I would get (another reason for trying to get a ballpark figure).

Re “You really need to know how much income you need to live on when you are retired.” – This is what I am starting to look at.

  

Re being honest about the amount of discretionary spending I may want to make in retirement to make the most of your healthiest years.  My gut feel is that I overestimate what we might do in retirement (but hey I’m 20 yrs off, so who knows).

 

Re the DC, Thanks, yes I’m aware I can access any DC pension earlier.  Obviously the permutations are endless, so I just gave some hard figures as a guide

 

Talking to an independent advisor is certainly a wise move; but I did think this itself might be too early, and therefore came to the fourm J

Alternative option to downsize and future proof accommodation needs is an option certainly; one to consider closer to the time.

 

Thanks

QrizB

Are your DB and DC pension projections based on current accruals, or do those £24k and £29k  numbers assume you continue to work and contribute until 60 and 65 respectively?

Rather than paying off the mortgage in 3 years, could you remortgage to liberate £250k now then invest it, continuing to pay the mortgage from income while you work then using that investment to bridge your early retirement until you can claim your pensions?

Does your wife work? Can you use the next decade to build her DC pension pot rather than yours, as you're on track to be a higher-rate taxpayer in retirement and she isn't?

Wyndham

You're assuming that as you are a couple now, you will be a couple in retirement. This may well end up being true! However, divorce or even death can both come into play.

I'd be particularly concerned for your wife rather than you. Your pensions may pay her something in retirement if you are not around, but her financial position doesn't sound very secure without you. Whatever the situation ends up being, it would be worth her putting money into a pension if possible - if nothing else it helps with tax free amounts for both of you in retirement.

collinsca

Thanks again.

Are your DB and DC pension projections based on current accruals, or do those £24k and £29k  numbers assume you continue to work and contribute until 60 and 65 respectively?

The DB is based on current accruals.

The DC is based on me continuing to work and contribute til 65.

 

Rather than paying off the mortgage in 3 years, could you remortgage to liberate £250k now then invest it, continuing to pay the mortgage from income while you work then using that investment to bridge your early retirement until you can claim your pensions?

That is entirely achievable.  At present, the mortgage is under 40k and I have 20k savings. 

Re-mortgaging is not something I had even thought about; definitely something work exploring. I assume the premise here is I am getting access to a large amount of funds to invest and use that to create wealth?

My concern would be that “as investments can go up as well as down”, I re-mortgage and the investments do not perform, or is there a scenario where I can get a super-low-risk investment?

 

Does your wife work? Can you use the next decade to build her DC pension pot rather than yours

She works (minimum wage).  She does have a DC, probably about 5 years in the NHS, and hoping that persists for another 10yrs or so!

as you're on track to be a higher-rate taxpayer in retirement and she isn't?

This is definitely something I need to brush up on.  My understanding is Higher rate at present is “£50,271”; so yes I will be over that as it stands (and well over at state pension age). 

 

 

You're assuming that as you are a couple now, you will be a couple in retirement. This may well end up being true! However, divorce or even death can both come into play.
Yes and yes.  Many permutations, needed somewhere to start, so I am looking at it from a positive perspective.

I'd be particularly concerned for your wife rather than you. Your pensions may pay her something in retirement if you are not around, but her financial position doesn't sound very secure without you. Whatever the situation ends up being, it would be worth her putting money into a pension if possible

My influence has meant she is focusing more on this now.

Hopefully she will have 15yrs of DC (and full state); modest but something.

She would inherit a 350k plus house too of course, providing options.

 

if nothing else it helps with tax free amounts for both of you in retirement.

Again – something I need to become more knowledgeable about.  Where can i learn more about this? Is this to do with a one off amount at retirement, or an annual allowance?

Thanks