Last updated 4th June 2019
When you say goodbye to the 9-to-5, will you be able to afford the lifestyle you want? It’s time to take a closer look at your finances – and if your income needs a boost, equity release could be an option…
It pays to plan ahead
When the time comes to retire, you want to enjoy a comfortable standard of living. But since we’re all living longer – and state pensions aren’t always enough to live on – achieving a comfortable retirement can be easier said than done.
On average, retired couples need around £18,000 a year to cover all of the household essentials – like food, utilities, transport and housing. This goes up to £26,000 when you include extras like short-haul holidays and leisure activities.* So it’s well worth taking the time to consider your own financial situation.
Even though some of us won’t need our full salary in retirement – after all, the kids may have left home – it’s still wise to do your sums and make proper plans for later life. Let’s have a look at a few things you should consider.
*Source: How much will you need to retire? Which?
How much do you spend now?
First things first – let’s see how much you spend now. An easy way to calculate your current outgoings is to look through bank statements from the last three months.
Go through with them with a fine tooth comb and make a note of things like utilities, food shopping and other regular bills and expenses (including your mortgage if you still have one). It’s also worth adding up your one-off spends – like your annual holiday, car repairs and Christmas presents.
Will any of this change when you stop working?
Okay, so once you’ve got a clear picture of how much you spend each month, it’s time to ask yourself whether any of these costs could go down when you stop working.
For example, will you still have a mortgage to pay? If not, this is likely to significantly reduce your outgoings, meaning you’ll have more money to play with each month. But if you still need to pay it off, then be sure to factor this into your finances.
Could any costs go up?
While some costs could go down when you retire, remember that others could go up. It’s important to be aware of these so you can think about how you’ll cope with them when the time comes.
For some of us, retirement will mean spending more time at home – and so your heating bills could rise. Others will want to use their new-found free time to enjoy hobbies and interests. And if you’ve been used to going on holiday every year, why should you give it up in your later years? After all, you’ve spent your life working hard and this should be your time.
As a rough guide, here are a few examples of how much people aged 65–74 are spending on average:
- £1,898 per year on holidays
- £1,903 per year on restaurants and take-aways
- £125 each year on going to the cinema and museums
- £617 each year on alcohol and tobacco
- £1,138 each year on new cars and motorbikes*
*Source: How much will you need to retire? Which?
Calculate your income
So, you’ve worked out how much you plan to spend. Now it’s time to see how it compares to the income you’ll get from your pension (including your state pension and any private pensions you may have).
Many will find that they don’t have anywhere near as much as they were earning before – and even though you may have been paying in for years, the reality is that many pensions pots aren’t enough to give you a really comfortable lifestyle in retirement.
With this in mind, you might find that there’s a gap between the income from your pension and your outgoings. And if you don’t have enough savings to cover the extra, you’ll need to start thinking about ways to access cash to make sure you do.
If you have equity tied up in your home, here’s one possible solution to help you make the most of retirement…
Equity release could help bridge the gap
If you’re a homeowner aged 55 or over, equity release could just solve your financial worries. You can explore the details in our equity release guide.
Basically, equity release lets you unlock tax-free cash from your home – either as one lump sum or smaller amounts as and when you need them. So, rather than leaving it tied up in bricks and mortar, you’d have access to the money – and you’ll be free to put it to good use during your retirement.
If you still have a mortgage, the money you release will go to pay this off first (as well as any other debt secured on your property) – so you won’t have to worry about that anymore. Anything cash left over after that is yours to spend as you wish – and you could use it towards improving your lifestyle in retirement.
With a lifetime mortgage, there is no need for monthly repayments – because the money, including rolled up interest, will simply be repaid when your home is sold. That’s usually when you pass away or move into long-term care.
Use our Equity Release Calculator to see how much money you could unlock from your home.
Get the advice you need
Just like with all big financial decisions, you should seek independent expert adviser to help you decide what’s right for you. And don’t forget to talk to your family – because equity release will reduce their potential inheritance and you’ll want them to know where they stand.