How to make your property work harder for you in your retirement
They say it’s never too early to think about retirement planning but what if you haven’t had the foresight to make adequate provisions for your old age, which is now looming large on the horizon? It may not even be your ‘fault’ – sometimes building up a sizeable pension fund from which to draw in retirement simply isn’t possible, for a whole raft of reasons.
If this sounds familiar, you’re certainly not alone. According to recent research, a staggering 80% of the UK’s over-55s are unprepared for retirement, with two thirds having put no financial plans in place and half having no personal pension. The majority of respondents said that they would expect property to play a large part in the retirement plans.
Whatever situation you are now finding yourself in, it’s important to look to the future and use the assets that you do have to your full advantage. If you are a home owner, there are ways that you can put your property asset to work for you, generating additional income to support your lifestyle in retirement.
Here are 3 financial strategies that are worth considering.
- Renting out your spare room
If you have the room – perhaps the children have long moved out, leaving you with a house that is a bit on the large side for your needs – getting a lodger could be an easy way to generate an extra income stream. Under the government’s Rent a Room scheme, you can earn up to £7,500 per year tax free (or £3,750 each if you’re letting jointly) for letting out furnished accommodation in your main home.
You can choose to provide meals or laundry services at an additional charge, although the money received for these services must be added to the rent to work out your total income. You can even go professional and run a guest house or B&B from your home, or advertise the room on Airbnb, and still take part in the Rent a Room scheme.
Depending on where you live, there may be a possibility to take in English language students over the summer – check with local language schools about their exact requirements and payment terms. If you like the idea of having youngsters in the house again, why not investigate part-time accommodation and guardianship services for overseas students who are boarding at private schools in the UK?
Whichever ‘casual landlord’ option suits you best, you should be prepared to share your home’s communal areas and facilities with your lodger. With a bit of goodwill on both sides, the arrangement can be beneficial for both parties, with many long-term friendships starting this way.
- Taking out an Equity Release plan
If you have lived in your home for a considerable number of years, the value of the property is likely to have increased substantially in line with property prices in the UK generally. Even if the mortgage hasn’t been paid off yet, this means that you may well have built up some equity that can now be tapped into to raise much needed cash.
Equity Release schemes to help you do just that have been around for a number of years. Designed around your personal circumstances, they’re a type of financial vehicle that helps you to get access to the capital tied up in your property. Put simply, you are borrowing against the value of your property asset while you carry on living there.
There are currently two main Equity Release products available. The most popular form of Equity Release is a Lifetime Mortgage. This is a long-term loan secured against your property while maintaining your full ownership of your home. You can choose to make repayments or allow the interest to roll up until such time until you move into long-term residential care or pass away, when the loan plus the accrued interest becomes repayable in full.
The alternative is to take out a Home Reversion Plan, which allows you to sell a part or all of your home in exchange for a lifetime lease. You can choose to receive a tax free lump sum, a regular income, or a mixture of both.
If you are considering an Equity Release scheme, it is essential that you take professional advice from a reputable Independent Financial Adviser who has experience in Equity Release, such as Reeves Financial as these should be able to answer any questions you may have.
- Selling the family home
Moving home is a big step at any age, but if you’re rattling around a large house on your own struggling to keep up with all the chores, perhaps now is a good time to downsize? Moving to a smaller home will allow you to free up some capital which can be put towards your retirement income.
However, before you decide to up sticks and move to a cheaper property, make sure it’s the right solution for your personal circumstances. Will there still be enough space for the children/grandchildren to come and stay? How far are you prepared to move from your friends, neighbours and all the local amenities?
Finally, make sure you scrutinise the figures carefully before you put the house on the market to see how much net gain would realistically be achieved. Taking into account the cost of moving including estate agents’ fees, stamp duty, removal and decorating costs, would there be enough money to achieve your double objective of downsizing to a suitable property and generating sufficient extra income from the savings?
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