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Post-pandemic predicament: equity release or delay retirement by 4 years?

Post-pandemic predicament: equity release or delay retirement by 4 years?
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Millions of Brits who are over the age of 50 could be forced to delay retirement by an average of four years due to the financial constraints of the pandemic and the need to support struggling family members. This is according to new research from financial services provider OneFamily.

However, not all over-50s are willing to delay their retirement. A good number are considering using equity release to access value from their homes if it means they can retire earlier. So, how do you decide which option is better for you? Let’s take a look.

How has the pandemic affected Brits’ retirement plans?

According to OneFamily, Brits over the age of 50 will need to push their retirement by an average of four years to recover from the financial effects of the pandemic.

Furthermore, one in eight (12%) of those who say they are likely to retire late expect to do so seven years later than originally planned. In total, three million over-50s will have to retire later than planned.

The main problem, according to OneFamily, is that many over-50s recently took a hit to their savings and investments. The research shows that more than one in three (36%) have lost money in the past 18 months, with savings dropping by £2,000 on average.

Additionally, money has been tight over the last year and a half as people in their 50s and 60s have helped out struggling family members. In fact, around one in six (17%) say they have dipped into their savings to help out relatives affected by the pandemic.

Faced with the prospect of postponing retirement, some Brits are looking into alternative solutions to avoid going down this path. According to the research, one in ten over-50s who have not yet retired would consider using equity release to access value from their home if it meant they could retire sooner.

Delay retirement or release equity: which is the better option?

There is no one-size-fits-all solution. Both options have advantages and disadvantages, and the best option will be determined by your specific circumstances.

Delaying retirement

Delaying your retirement will give you time to save more money. Rather than ceasing to invest or save for your future and starting to withdraw from your savings or pension, as most do when they retire, you can continue saving to build a bigger nest egg.

Furthermore, delaying retirement means you will not have to rely on your savings for as long as you would if you had retired at the usual age.

Having said that, there are times when postponing retirement may not be the best option. An example is if you work in a physically demanding job or one that could jeopardise your health and general wellbeing as you get older.

Equity release

Equity release lets you access the equity in your home in the form of cash. You can use this cash to fund your retirement and avoid having to work for longer than you want.

It is quickly becoming a popular option for those looking to extract value from their home. Borrowers are currently benefiting from lower interest rates and more options for equity release products.

Research shows that the average rate of a lifetime mortgage has plummeted by 2.39% over the past five years. Last year, borrowers paid 3.4%, down from 5.79% in 2015. Meanwhile, as of July 2021, the number of equity release products jumped to a record high of 668, from 448 six months earlier, according to the Equity Release Council.

Additionally, some providers are offering homeowners extra flexibility. Some plans allow you to repay all or a portion of your monthly interest, lowering the amount you owe at the end of the loan.

However, equity release is not without its drawbacks. For example, it reduces the value of your estate and, as a result, the amount you can leave to your beneficiaries. If you intend to take this route, it is critical that you inform your family of your intentions.

Additionally, having extra income from equity release may reduce your entitlement to benefits such as universal credit and pension credit.

If you’re considering equity release, it’s a good idea to first consult with a financial adviser, preferably one who is certified in equity release. They can advise you on whether this is the best option for you. They can also help you find the best deal for your circumstances.

Bottom line

If Covid-19 has thrown a spanner into your retirement plans, you are not alone. It’s an issue that many Brits are facing.

If you’re still fit and healthy, then you can choose to work for longer to build up a bigger nest egg. If that’s not possible, then you can use equity release to access some of the value of your home. Carefully assess the pros and cons of each to determine which is the best option for you.

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