Equity release - can someone explain it to me please?!

[Moirarosesgarden]

We have no children or anyone else who we would want to leave inheritance to.

We are 45 and 47 and should be able to pay off our mortgage in the next 3 years and will have an asset worth circa £500k. Next focus will be building pension pots which I think will sit at around £100k each by age 55.

At what age can we do equity release and how does it work in simple terms?! Would equity release and our pensions give us enough to live off comfortably if we wanted to retire at 55? Is there an easy way to work out how much this would give us?!

It’s rather unusual for an IFA to also be able to give tax advice. Do they have an accounting qualification as well?

55 is quite young to retire these days, your “minimum pension age” when you can draw your private pension is 57 so you need factor that in. Your state pension won’t be paid until 67/68.

I wouldn’t overpay the mortgage above saving for retirement, and I wouldn’t expect £100k each at age 55 (57) to provide a comfortable standard of living - it would be less than £5k each a year. Unless you’re very frugal I think that would be a struggle.

You don’t need an IFA, you just need to work out what income you want in retirement and what sort of “pot” that requires. Retiring at age 55 is unlikely, though.

@Moirarosesgarden In simple terms, equity release is a loan borrowed against your house. Why would you be so determined to pay off one mortgage and rush headlong into another one with huge repayments? You might not have dc but you will be feeding a shed load of money into loan repayment leaving no ability to support a charity or anyone much after you go. You will just have a massive debt. Do you have no younger relatives to leave your estate to?

Downsizing is much better. Plus why do neither of you have pensions? Your house isn’t worth enough to be your income in old age. I would divert as much as you can into pensions and get the tax relief. It’s madness piling it into a house and no pension. Even if you get £150,000 out of the house, how long will that last? At 55, not long. You need to face facts and keep working and start a pension. You have 25 years of catching up to do.

Also when you get old, and people help you snd are kind to you, you might wish to leave them something. Few people live in a title vacuum.

@SlipperyLizard How can anyone retire at 55 with no pension savings? It’s ludicrous. This is why we have people worrying about money and who downsizes at 55?

This makes no sense. Why tie the money into the house in the first place, only to release (“untie”) it again at great expense and less good value than a regular mortgage? Just don’t pay off the mortgage in the first place: put more in the pensions, or downsize. (What @TizerorFizz said.)

I agree with others, equity release is (to my mind - I also do not have children) something to do right at the end of life when you’re confident you won’t need to move again, to give yourself a bit of extra cash in the last years.

You would be better off putting your money into pensions now and paying off the mortgage later. Equity release is not the answer unless you suddenly find yourself in urgent need much later in life - it really should be a last resort rather than something that's planned for.

If you are saving/paying your mortgage now and would like to retire early but can't afford to, you could consider going part-time at 55 instead.

For example if you and your partner bring in 4k between you each month but 2k goes on the mortgage and savings then when the mortgage is finished you could also stop saving and reduce your working hours to only bring home 2k.

This amount would need to be adjusted for inflation but hopefully your wages adjust for inflation. Due to your tax free allowance you should also find if you work say 50% you should bring home more than 50% of the money.

If you can work a further decade part time (from 55-65) then you should have plenty of cash to retire and self fund for a couple of years before you get your state pension and then to top thar up a little bit.

You can then downsize your house when you feel it is the right time.

Indeed @TizerorFizz, I really feel like we’re sleepwalking into a retirement crisis if people genuinely think retirement at age 55 is achievable by starting a pension in their late 40s.

@Winter2020 They are never going to build up a pension by working part time at 55. They need to work longer and actually earn decent money to put into a pension. They simply don’t have enough to semi retire at 55. At 65 they have a chance. 55 is 12-13 years before the state pension and, given they cannot take a lump sum from a pension, as others can, because they don’t have one, its wake up time regarding the need to save. We just seem to expect to work far less than our ancestors and have way more money. The sums don’t add up.

No idea.

The guy's email SIG says 'FPFS IMC ...Chartered Financial Planner'. And filling in a tax return presumably doesn't require an accounting qualification, otherwise HMRC wouldn't be asking me to do it. 😂The only tax advice he gives is 'let's try not to leave it too late next year, shall we, CrystalSingerFan.' I am VERY bad with forms.

I kind of disagree that it's not possible to retire early.

What's really, really key is to determine your budget / how much you want to spend per year. The lower the outgoings, the earlier you can stop. If you have full SP and a DB pension, all the better.

I think the (currently v popular) book Die With Zero by Bill Perkins could be useful to you OP. I like & roughly follow the approach described by Paul Armson's Enough - How Much Do You Need For the Rest Of Your Life.

Chartered Financial Planner doesn’t mean they have academic or professional qualifications acquired by an exam. It’s a public pledge and not a lot more. However better than nothing. Financial planning is inextricably linked with tax. Definitely IHT and CGT planning. It’s about managing money for the best personal outcomes. We certainly talk about any tax liabilities on our investments but also have accountants,

@Chewbecca The money available to the op here doesn’t add up. They should review their earnings and debts and start saving for a pension. Downsizing will produce some money but what then? The family silver has gone. It’s best, in their situation, to work and get a pension. It’s actually better to front load a pension so it grows more over a longer period. Here, there’s no lump sum available either. It’s poor planning really.

Downsize, or sell the house and rent. Spend the entire proceeds! Over 55s rental accommodation is secure so you won’t be at risk of a landlord selling up or trying to evict you.

Actually I can’t say I agree with your comment that it should be taught in schools. It isn’t your school’s fault you had a harebrained idea. You’re supposedly intelligent people. Read. It’s your responsibility to educate yourself on your own finances. Martin Lewis, Daily Mail personal finance pages (so I’m told). You have the internet at your fingertips. Use it!

Not sure which country you are in but here in the UK it is indeed a regulated profession and you need to have passed the required academic qualification to be authorised.
If course you take taxation into account when you are recommending an investment but you cannot provide tax advice to a client.

@messybutfun The advanced diploma is level 6. The Diploma is level 4. A few degrees at low tier universities let you do the qualification whilst doing a degree. If you wanted to be a chartered engineer, for example, you need a MEng and at least 3 years doing work of a suitable level to be CEng. CII is some way off that expectation but better than nothing.

ER might be worth it at 75+ as you get a larger percentage - it definitely is not worth it at 55.

Hi OP

If you value being mortgage free and want to build your retirement savings you might want to consider whether downshifting to a cheaper house now would be a viable solution for you.

Before paying for financial advice perhaps post some details about you salaries, pension type etc, other saving to get some insight into standard ways of making retirement savings.

£100k each pension pot is not enough unless you want to live in poverty. I had £400k and it's just enough to be comfortable with another small pot bringing £600 pm in.

The older you are when you take equity release, the more you will get. My dad took equity release, £15 when he retired at 65 to pay off his business debts. By the time he died, 23 years later, there was virtually no equity left in the house, Mum had to move as the house was way too big. She auctioned the house off and went rented for the rest of her life, it actually worked quite well for her as there was no money, so she was able to get housing benefit and help towards her care costs. In your case, with no descendants, I would leave the house till your other savings are getting low. Then don't take put the full amount on equity release in one go, but just enough for a year or so at a time. That way you will be paying the minimum interest and if your house rises in value, you will have more to draw over time. I am not a financial adviser, so get proper advice, but I have a mission to pay as little as possible to banks and insurance companies.

The major issue is the ship has sailed to allow the OP to build up a pension pot. Paying the mortgage off shouldn’t necessarily be a priority with no pension. It’s going to be very difficult but I’d work and not borrow again. What’s the point in paying off one mortgage to immediately get another one?

I’m not a finance expert but I do work with elderly people. Many people, as they get older, cannot manage to live on in the family home for a variety of reasons- can’t manage the stairs, garden or house too big to look after, can’t drive anymore and not on a bus route. Equity release is really designed for people who are going to keep on living in their house until they die. But in your 50s you have no idea if that will be appropriate for you both by age 75. If you have to move you may have very little money left over to buy somewhere suitable. Having to rent may not give you secure housing.

I’d advise to concentrate on pensions and then look to downsize/move to cheaper area when you need to release money from the house