Many people approaching retirement and beginning to plan for their future are finding to their surprise that they may not have the resources to provide them with the comfortable lifestyle that a salary has funded during their working life. A recent research study into the plans of a pre-retirement group in the UK found that 17% of respondents had little idea what their main source of income would be in retirement, with 65% reporting that they will be relying on their own pension savings. And a significant number had not discussed with a partner or spouse where they were going to live or what their plans were for their life together after retirement.
The couple in our case study (Mr and Mrs Vincent) were at least very much better prepared, but are still finding that their expectations for the future might not all be fulfilled unless they start to plan at once. In their mid-fifties, they are looking to retire in ten to twelve years’ time, and have already started to budget ahead. They have discussed where they want to live, and have decided that they would like to stay in the family home, but realise that it might be difficult for them on a reduced income. With rising food and fuel costs, calculating the income that they will require to retain a comfortable – if not extravagant – lifestyle ten years ahead is difficult. There are some online sites that will provide a guide, but it can only be a guide. Talking to a specialist adviser at Bower at this stage will help significantly in clarifying the choices available to them.
Mr and Mrs Vincent have realised that although their retirement income should cover day-to-day living expenses, and they will have paid off their mortgage in another two years, they will not have the financial “cushion” to cope with unexpected expenses and emergencies. The house will need continuing upkeep if it is to stay in good repair, and they may need to adapt the space to their needs as they grow older and less fit. Installing stair lifts, for instance, can be a major expense, as can adapting bath and shower rooms for easy access and use for older people.
They are exploring the options that will be available to them through equity release schemes, and in particular the choice of a lifetime mortgage. To help in deciding which of the different lifetime mortgage schemes might be right for them they need to identify the age that they will retire at, which will in turn influence whether one scheme would be more suitable for them than another. They also need to decide whether they will need to release a lump sum which they could then choose to invest for those unexpected events, or draw upon for holidays and special trips – or whether a monthly income would be of more use to them. Some schemes will offer both.
Their first question is, understandably, what is a lifetime mortgage? Lifetime mortgages are a version of equity release where a provider lends a percentage of the value of your home, but unlike an ordinary mortgage you don’t have monthly payments to make nor is there a set term. The three main types of a lifetime mortgage are a lump sum lifetime mortgage, with a straightforward lump sum payment; an interest only lifetime mortgage, where the amount borrowed remains intact, and you pay interest monthly on the sum; and a flexible drawdown lifetime mortgage. This allows for the option of a cash reserve from which you can draw down funds as and when they are needed, until the reserve has been used. The advantage of this scheme is that you don’t have to pay for any cash releases until you need them.
Using the Bower lifetime mortgage calculator Mr and Mrs Vincent are able to check whether they qualify for an equity release scheme, and how much they might be able to borrow through a lifetime mortgage. Setting up an initial consultation with a Bower adviser at this point will provide them impartial advice on the various schemes on the market, and the chance to discuss which is the right one for their needs. They believe that the most suitable is likely to be the drawdown mortgage, which will provide them with exactly the flexibility that they are looking for, and they will only need to call upon additional cash in the case of house repairs or alterations.