Here’s how much your retirement could cost you
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THE age at which you retire is up to you but thinking about if you can afford the retirement lifestyle you’d like is important for making this decision.
If you’re not sure, you’re not alone. A recent survey by Which? revealed that 51% of people yet to retire said they weren’t confident how much money they’d need to live a comfortable retirement.
To help you think about your future finances, here’s how much your retirement could cost you.
Retirement financial planning
The Pensions and Lifetime Savings Association suggests for a single person household to live a moderate lifestyle they would need £31,300 each year, increasing to £43,100 for a two-person household.
For a single person household, this includes costs such as:
- Home maintenance and decorating
- £55 on weekly groceries
- £63 on weekly meals out and takeaways
- Running a 3 year old small car
- Getting occasional taxis and trains
- A two week 3* holiday abroad along with a long weekend UK break
Alternatively, for a minimum standard of living you’d be looking at £14,400 for a single person or £22,400 for a two-person household.
For a comfortable standard of living this increases to £43,100 for a single person or £59,000 for a couple.
If you’re not sure if your current savings will allow you to live the lifestyle you want, there are options to help you supplement your finances in retirement.
How you could supplement your income
One way to supplement your income could be through using some of the value that’s built up in your home, known as equity release.
If you’ve owned your home for a number of years it’s likely increased in price, and you could tap into this wealth.
It could allow you to unlock tax-free cash from a minimum of £10,000 up to around 50% of the value of your home. How much you can release depends on factors such as your needs and the age of the youngest homeowner, who must be at least 55 years old, and the value of your home, which must be worth at least £70,000.
What does equity release involve?
One of the benefits of equity release is that you can reduce your committed monthly expenses as equity release requires repaying any existing mortgage.
Plus, there’s no requirement to make regular repayments with equity release as the money you release, plus accrued interest, is repaid when you die or move into long-term care.
Equity release may involve a home reversion plan or a lifetime mortgage. A lifetime mortgage is secured against your property, and you continue to own 100% of your home.
A home reversion plan involves selling all or part of your home, but you can continue to live in it until you pass away or move into long-term care. Both plans will reduce the value of your estate and impact the ability to pay for care in future should you need it.
Once any existing mortgage has been repaid the money you unlock is yours to enjoy spending. You can use it to supplement your finances, or for bigger purchases such as holidays or home renovations.
Alternative options to equity release
Other options to help you supplement your income could involve downsizing to a smaller or cheaper property. This could in turn help with saving costs associated with running a larger home, such as home maintenance and utility costs.
Another option could be to rent out a room in your home to a lodger. The government has a rent-a-room scheme available to help you get started, and it could be tax-exempt if you earn less than £7,500.
Speaking to family and friends is another option. Although it may seem like a difficult conversation, loved ones might be willing to help support you in retirement. It’s also wise to investigate any benefits you may be entitled to.
Get advice
If you decide equity release could be right for you, it’s a requirement that you get advice before proceeding. Your advisor will take you through the pros and cons, and help you look at alternatives first.
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Through initial advice is provided for free and without obligation. Only if your case completes would an advice fee of £1,895 be payable. Other lender and solicitor fees may apply.
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