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Debt and Retirement

Think it is time to retire? Perhaps you are being prevented from retiring by debt problems. We are going to look into what you can do by:-

  • Managing Your Debt
  • Accessing money tied up in your home
  • Using your pension plans

Managing Your Debt

Begining your retirement should allow you to relax and unwind after years of working and contributing to society. However, retirement for many people is a time when income drops as your full-time wage disappears and is replaced with your old age pension plus any financial provision you have made for yourself. Debt payments can become harder to meet and good debt management is needed.

If you have a pension scheme in place, you could use the 25% tax-free cash that is usually available to clear some or all of your debts. This is available from age 55, usually. The downside particularly if you take the money before you intend to retire is the impact it will have on the regular income portion of your pension. It is import to rank the debts by there level of importance so you can allocate your cash appropriately.

Debts fall into two groups, secured and unsecured. Secured debts are secured against your property, mortgages, second charges secured loans etc. These debts are usually the priority as failing to maintain payments can lead to your property being repossessed by the lender. Unsecured debts are debts from credit cards, unpaid utilities unsecured loans etc. Failing to pay these debts won’t result in you losing your property, the action is usually through the county court to get a county court judgement some times bailiffs are brought in to recover the property.

State debts, e.g. unpaid council tax, income tax etc. can result in criminal proceedings so should also be a priority

If in serious debt it is best to approach a debt advice service. There are plenty of charities about who can help. A couple of useful links are give below.

Help Full Links

Release Equity in Your Home

Equity release is a way of “releasing” some of the value tied up in your house. Plans are available from age 55 but when take this young can be poor value for money.

There arehundreds of schemes available they fall into two categories:-

Lifetime Mortgage

These plans are life long mortgages that run until the last mortgage holder has died. The Mortgage debt plus accumulated compound interest is paid from the proceeds of the sale of the house. There are no monthly payments. The amount you can borrow is dependent of the house value, and your age the younger the less you can borrow. Interest can build usp quickly, however many plans will cap the total interest so that more is not owed than can be recovered.

Home Reversion

With a home reversion plan, you sell the provider a share of the equity of your house in exchange for a lump sum, the lump sum maybe 50% of the actual value of the share being sold. There is no build-up of interest but you have a partner in your property that you may not be comfortable with. The older you are the better the deal you are likely to get.

Releasing equity is a significant decision you are probably best taking professional advice before committing. Either type can give you a substantial influx of cash that can help with your retirement as additional income or a way to clear debt.

Using Existing Pensions

Do you have existing pension provision? If you do, it is available form age 55 now. Most pensions allow for a lump sum to be taken tax-free of 25% for a defined contribution scheme or a multiple of regular benefits for a defined benefits scheme

Other Help

There are some state benefits that could be available, these include pension credit and help with council tax or rent.

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