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Should your Home be your Pension? The Pros and Cons.

While the State Pension can provide a good foundation for retirement, relying on this alone is not enough for many. Increased numbers of freelance and self-employed workers also mean that fewer may have a workplace pension to supplement their income.  

So, what are the alternatives? Property is a popular way to supplement income, but is this a smart move?    

The Advantages

There is no denying that for many of us, our biggest asset is our home. We invest a great deal of time and money into it, and most of us see the value of our homes increase through improvements and/or market movements. Some homes even have the potential to earn more than they were originally bought for, depending on the economy and the property market.

Come retirement, these properties can offer us a great deal of flexibility. Once the mortgage is paid off, we can either opt to sell the house and downsize, or choose equity release, a type of loan that allows you to access the value of your property without having to move. Regardless of which option you go for, this money can then be spent however you like. Property can also be used to provide an income through rent which further adds to the options available. 

Potential Drawbacks

However, one of the most obvious drawbacks to this plan is that the property market is unpredictable. While house prices are generally increasing, there are no guarantees. This means that by relying on your property to fund your retirement, you could risk being short of funds. Needing to sell at the ‘wrong time’ can mean having to take a lower amount or delaying retirement plans.  

Equity release may be an option, but this also has its own drawbacks to consider. Not only can it be costly to set up the loan, but there are also legal and valuation fees on top. If you qualify, then the amount you take out against the value of your property is later repaid when the property is sold, along with interest accrued. This means that any inheritance you plan to pass on will also be significantly reduced, or even wiped out completely.

So, should your home be your pension?

The answer really depends on your individual situation and how much of a risk you’re willing to take. If you would like clear, professional guidance about all the different options available for funding your retirement, then our advisers can help.

By taking the time to get to know both you and your finances, we can draw up a plan that makes the best of your situation and aims to achieve your retirement goals. Contact us today to arrange your free initial consultation with one of our financial advisers.

Contact us today on 01691 670524 or email us at [email protected]