The Early Retirement Gap

With rises in the state pension age planned in the next 15 years, many people are presented with dilemma - work longer than they had planned, or retire and face a gap in retirement income.

While many people will have had 60 or 65 in mind as the age they will retire at depending on their gender, the state pension age will equalise and rise to 66 in 2020 and 67 in 2028. Our research found that more than half of people still plan to retire before the age of 66 and that the older people are, the more likely they are to say this. These older people are therefore likely to face a shortfall in their retirement income as they will not receive their state pension at the age they plan to retire.

Those in the 'baby boomer' generation are most likely to say they will retire before the age of 66 so are most likely to face a shortfall. These are also the people who have the least time to adjust the amount they are saving to cover any shortfall.

When asked how they plan to cover this shortfall, some said they would rely on their private pension, some will work part time and some will use non-pension savings.

However, a quarter of people admit they have no idea how they will cover this.

The good news for these people is they may be literally sitting on the answer. Baby boomers who profited from cheap housing and easily available mortgages now often have a large amount of wealth in their property. Equity release allows homeowners over the age of 55 to access this without having to sell their home.

Even releasing a small proportion of the equity in their property could cover this shortfall between retiring and receiving the state pension age. The cash can be accessed as a lump-sum or in regular payments and any interest is rolled up in the sale of the house after the owner dies or goes into care.

There are other options of course such as downsizing, working part time (which 14% of people plan to do), or using non-pension savings but equity release should be considered alongside these as one possible option and a conversation with a specialist financial adviser and solicitor should be the first port of call.

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