Funding retirement: What are your options

Retirement can sometimes be hard to fund, especially if you do not start planning for it early.  Take a look at these different funding options available to you such as savings options, pensions, and equity release.

Equity ISAs

If you have a pension but want to boost it with another investment then an equity ISA is the way to go.  Each year you get an allowance of £10,680 to deposit into your account and the interest you earn is tax free, so this is the best way to save money if you can deposit money over a long period of time without extracting it.

Pension

A pension is the most common way the majority of Brits fund their retirement.  Whether it is through a personal pension, a defined benefit pension, or what the majority have – a defined contribution pension.

The latter requires the individual to insert a percentage of their monthly salary into a pension scheme of which their employer will match.  Over their working life they will build up a pension pot which will be used to buy a pension income with.  The income amount will vary dependent on the amount saved.

Equity Release

Some people approaching retirement may not have been able to save enough money to buy a pension that will be able to support them.  This may be due to several reasons, one of which could be they decline to join their company’s pension plan with the thought that they would save through other means.  Alternatively their company may not have offered a pension plan at all (sometimes common with small or start-up businesses).  Finally if a person did not start saving early enough either through a private savings plan or a pension scheme, their pension income may not be enough to live comfortable on through their retirement years.

If this is the case, then the individual may consider equity release.  Equity release is available to those who own a home and have paid off all or the majority of their mortgage. As a result of this they will have a significant amount of equity tied up in their property.

An equity release scheme will enable the individual to remain in their home but receive a cash lump sum.  Homeowners can either choose to take out a secured loan on their home which acquires interest, or sell part or all of their house to an equity release company through a home reversion plan.

Initially the amount of money the individual can receive through an equity release scheme is often worked out through the means of an equity release calculator.  The value of the house, the age of the occupier and any outstanding mortgage left to pay are all considered to estimate a release figure.

So if the individual does not have an equity ISA, or a substantial pension, or simply wants to purchase something expensive like a holiday home which they could otherwise not afford, then equity release could be the answer.

It is a popular option for those in retirement as it means they can remain living in their home, so their lifestyle need not change.  Some equity release schemes also make it possible to leave some of your home as an inheritance.  Alternatively you could use the money raised through equity release to help your family now and enjoy watching them put the money to good use.