Do you find that clocks appear to go much faster in the morning, especially when you’re in a hurry?
One minute it’s 6.30am and you have loads of time to shower, dress and enjoy a cup of tea while absorbing the sports and other news on your phone; next thing it’s 7.40am and if you’re not behind the wheel of the car within two minutes, you’ll be trapped in horrendous traffic and it’ll take ages to get into the office. Sound familiar?
Well, this is how life used to be, pre-working from home at least. Nowadays, thanks to Covid’s unsolicited arrival and its longer-term impact upon society, an extraordinarily large number of people have rather taken to working in their dressing gowns while preparing to dial into the day’s first screen-based digital meeting. Others, gladly jettisoning a suit and tie, don tee shirts and shorts while sitting at their desks. It makes you wonder: perhaps the pandemic did have one beneficial side-effect after all – turning us into a considerably more laid-back nation.
Although Covid has since been blamed retrospectively for a multitude of societal ailments, this sinister virus notably failed to change the rate at which the years whizz by once you’ve turned 50, irrespective of whether you’re working from home or commuting a few days each week.
In other words, time waits for no man, or woman, and because of this you can find yourself quietly contemplating the onset of early middle age, despite believing that you’re still capable of cutting a few shapes on the dancefloor. Suddenly, without warning, an application form for a bus pass drops through your letterbox or, worse still, you’re invited for a flu jab! And you haven’t even retired yet.
If this scenario sounds familiar, it’s probably about now that you should pause for breath and consider something very important: will you have enough money in your pension pot to see you through retirement?
Cast your mind back to those days of lockdown, a period when, during the course of our daily ‘constitutional’ (a hearty walk of about four miles), my wife and I became friendly with a large number of people to whom we might previously have only smiled or mouthed a ‘good morning’.
Lockdown encouraged greater and more meaningful interaction between dozens of people, each of whom was in the same boat as us and everyone else. As a result, we found ourselves deep in conversation with different people almost every day. Soon, a walk that previously took an hour was taking almost two, though we never complained.
Our daily walk took place in a magnificent country park, and it was against a beautiful backdrop of trees, lazy cattle and birdsong, that one of the recurring topics discussed at length was retirement.
In particular, two blokes who happened to be roughly the same age as me each admitted to worrying about whether the combination of the money they had saved, their pensions and other investments would be sufficient to last them for the rest of their lives. Neither had any intention of returning to work full-time, post-pandemic.
Nor did they, even though both recognised that as they stood, their respective pension pots would inevitably produce a lower level of income than they required. However, both planned to consider releasing equity from their homes and add the funds to their respective pensions in the expectation that they would enjoy sufficient income to last a lifetime.
It follows that when contemplating how much money you wish to withdraw as income from your pension, you must also consider how long it will last.
Some folks can be quite nonchalant about their retirement planning, claiming that they just want to ensure that the last-ever cheque they write will bounce. Bad luck on the payee, perhaps, but you see their point. The problem with such an approach is obvious: how do you know when it’s your turn to shuffle off this mortal coil?
Because none of us do, we need to decide which of the following strategies is best suited to our (hopefully longer-term) objectives:
- Are you prepared to take the maximum income from your portfolio at the risk of eroding all of your capital?
- Would you prefer to take a lower income but preserve a much larger proportion of capital?
- Keep your capital untouched for now and use income generated from other sources (part-time job, ‘other’ investments etc) until the time comes to dip into your pension pot?
It is, unfortunately, one of those dilemmas to which there is no correct answer. However, before the rate at which the years whizz by begins to speed up (it doesn’t, although it can often feel like it does), there’s great merit in deciding which is best suited to your circumstances.
Once upon a time, projected pension shortfalls could be tackled by either drawing less income, or, more dramatically, ‘downsizing’ in the hope that the net balance from the sale of your house is sufficient to make good the possible shortfall.
Fortunately, as my two mates discovered, equity release offers another possible answer.
Indeed, a burgeoning number of older homeowners, i.e. those aged 55 and above, are using the wealth built up in their homes, usually over many years, to assuage the problem of possible pension shortfalls. The method by which they achieve this is very straightforward: an equity release plan enables them to release tax-free funds from their homes to cover any projected shortfalls or other gaps in their projected pension income.
This increasingly popular means of what could be called ‘supplementary pension funding’ has already enabled thousands of homeowners to set aside their pension-related concerns and get on with enjoying life.
While there is no ‘one-size-fits-all’ means of dramatically improving a pension, no silver bullet capable of easing pension-related worries, but for many, equity release is certainly worthy of further investigation.
It’s worth noting that equity release can have an impact upon the value of your estate and it could affect your entitlement to means-tested state benefits. In other words, it is a decision – and a process – to be taken seriously and prior to proceeding, you should seek advice from a whole of market equity release adviser who can explain all of the implications in greater detail.
If you’ve read this and found yourself quietly thinking “I might be in that boat”, you’re not alone. The key is to explore the full range of options early, and in the right order - so any gap in retirement income doesn’t become a last-minute scramble. For homeowners aged 55+, using property wealth can sometimes form part of a sensible, joined-up plan alongside pensions and savings.
If you’d like to understand whether equity release could help in your circumstances, speak to your local Equity Release Supermarket adviser on 0800 802 1051.
