However, not everyone has a sizeable pension fund to draw on and will need to look to other ways of raising cash to boost income in retirement.
Here are some alternatives for those who need to look elsewhere for a cash injection:
Equity release is a popular way for homeowners to raise extra cash in retirement. It allows the millions of pensioners in the UK who are sitting on valuable bricks and mortar but with strained bank balances to use their asset and turn them into cash, without selling up.
The average retiree is sitting on housing equity of around £200,000. The amount of cash being freed up using these plans is soaring. The total value of equity release lending reached almost £1.4 billion in 2014, according to the latest figures from the Equity Release Council. This is the largest annual figure since records began in 1992, exceeding the previous high at £1.21 billion in 2007, by 14%.
The cash is released tax-free and can be taken as a lump sum or as a series of smaller withdrawals as and when required. There are no restrictions on what you do with the money, so you could use it for home improvements, to clear debts or even for that holiday of a lifetime.
However, equity release is not right for everyone, as there are certain costs to bear and it will impact on the amount you can pass on as an inheritance. For those considering equity release it is worthwhile to get specialist advice to see how suitable it is in your circumstances. An alternative option is to think about downsizing.
Selling the family home and moving to a more manageable property is attractive to those who don’t need as much space when their children have left home. Running a large house is also expensive and time consuming, so many are happy to up sticks and release some equity at the same time.
Once you have had your current home valued, you will need to decide on how much money you want to keep aside, and your budget for a new home. You will need to do some research on what you can get for your money. It might not be possible to stay in the same area, so you may need to prepare yourself to move away a little. A home half the size won’t always be half the price in the same neighbourhood.
Cashing in your investments
You may have investments that have not yet reached maturity date. But you may need the money before this date arrives. Some investments charge a hefty fee to access the money early. Millions of savers still hold with-profits policies as part of their pension saving or as stand-alone investments in the form of lump-sum bonds or endowment plans.
Some providers apply exit penalties, termed ‘market value adjustments’ or ‘market value reductions’, so check before making a decision on withdrawing your cash. There are certain ‘free’ dates when you can get hold of your money, so find out when these are.
If you are tempted to raid your ISA, remember you can’t replace the money – once it’s out of the tax wrapper, it cannot be replaced.
If in doubt, seek professional advice
Any of these options represent a big step and so all avenues should be explored, taking into consideration everything from your savings and investments, and any debts, as well as tax issues.
If you don’t feel like you can go it alone, then get professional help. You may have to pay for it, but it will be money well spent in the long run.
You can search for a financial adviser in your area.
Alternatively, speak to Saga’s Financial Planning Service.