Retirement: Freeing up equity could help protect your pension
4:45 p.m. 4 November 2021
Those of us who wear little more than a hint of gray hair like to believe that we are rational and balanced people.
And for good reason.
For example, we sort our household garbage before putting it in the appropriate recycling bin. Depending on the circumstances, our celebrations usually reach their peak when we realize we have had enough. We almost always stay calm when an idiot swerves recklessly across the road without signaling it, causing us to suddenly brake. And, when it comes to pensions, we do everything by the rules.
Except we don’t.
Millions of people save during their working lives, often when it isn’t easy, to enjoy the fruits of their labor throughout a happy and prolonged retirement. However, just as they reach the figurative finish line, pointing for the last time, a lot of people are doing something completely different that can put their future in jeopardy, making several easy-to-avoid mistakes.
For example, a significant proportion of people reaching retirement age prefer to draw a regular income from their fund (hence the âdrawdownâ), but they do so without trying to compare the best annuity rates.
It’s amazing that we spend hours checking hotel prices and other travel expenses for a long weekend that can cost several hundred euros, but when it comes to our pensions, which are worth so much more than the cost of a hotel for four nights, we are happy to stay with the company that has managed our savings for years.
The result is that a poorly timed display of financial inertia often means people are paying more for the privilege of accessing their own money or missing out on a wider range of withdrawal options.
Then there are people who are still ten years away from retirement who conclude that it would be a good idea to withdraw the 25% tax-free abatement all at once from their pension fund (to which anyone over the age of 55 is entitled). Unfortunately, a surprisingly large number often get greedy and just take a “little bit more”, a decision that often pushes them into a higher tax bracket (because they still earn a salary) and their pension savings are. affected by a rate of 40%. (or more) costs.
The message in both cases is: watch before you jump. Yet there is one particular action that may tempt more people than they would admit that can be disastrous.
Most retirees will be relying on their retirement kitty until they get rid of that deadly envelope, supplementing the state pension of Â£ 179.60, which could hardly be called a king’s ransom. So it’s important to keep an eye on it, to make sure it lasts. It’s the right thing to do, isn’t it?
Sure it does, but try telling that to people who are anxious to get their hands on every penny and start blowing it all up.
Economists argue that we tend to spend more money in our early retirement years when we are still able to travel the world, cross the Pennines, or cruise around the coast, although that doesn’t explain how. the previously “cautious” guys end up emptying their retirement pot, often at thrift stores, a few years after retirement.
Fortunately, most people retain their ‘conservative’ gene as they age, which may be why an increasing number of people are using equity to supplement their public and private pensions, drawing on often substantial real estate wealth. that it took a lifetime to accumulate. Fortunately, more debauched types can also fill the retirement void, often caused by overspending too early, by freeing up a percentage of their home’s value.
The process of releasing equity is as simple as applying for a mortgage except that the funds released from the house are tax free and beneficiaries can do whatever they want with the money.
Certainly, some pension pots run out sooner than their owners anticipated and while this raises the possibility of having to ‘get by’ with the state pension, freeing up equity may offer a traditional alternative. downsizing or a less fulfilling retirement. .
Freeing up equity is not for everyone, so it is highly recommended that you seek professional advice before taking the next step. Of course, being a sane person, you knew that.