With 2025 drawing to a close, many people’s thoughts will be turning to plans and aspirations for the new year.
If you are preparing to retire in 2026, or in the near future, there are many things to consider.
It can be an exciting time, offering the chance to spend time doing the things you enjoy and reaping the rewards of decades of hard work.
However, it is also a huge transition, especially when it comes to your home and finances.
Here is how those heading into retirement can prepare.
Exciting time: But it is vital that people who are retiring know where they stand financially
Work out your budget
Sophie Walsh, head of equity release advice at Royal London Equity Release Advisers, says: ‘Our advisers regularly speak with homeowners who are planning for retirement.’
‘Many people heading into retirement underestimate just how much everyday costs and one-off expenses can add up.’
It’s therefore vital to work out your budget, starting with your income and outgoings.
You can use the Government’s state pension forecast tool on the Gov.uk website to get an estimate of how much state pension you will receive.
If you’re close to retirement, you should also have identified any workplace or private pensions, and the income you can expect from these whether it is through a lump sum, taking a regular income via drawdown or purchasing an annuity.
Many people heading into retirement underestimate just how much everyday costs and one-off expenses can add up
Sophie Walsh, Royal London Equity Release Advisers
If you take a lump sum, it can be helpful to set a monthly or annual budget and limit your spending accordingly, so you don’t run down the amount quicker than you were expecting.
Once you know how much money will be coming in, it’s time to work out your expenses. Include housing costs, utility bills, transport, groceries and home maintenance, as well as anything you plan to spend on luxuries such as holidays, meals out and new clothes.
Subtract your expenses from your income, and you’ll have an idea of the budget you have to work with.
‘This time of year is ideal for reviewing your finances. Look at any outstanding debts, expected costs, and what you want your retirement to look like,’ Walsh adds.
Could equity release support your retirement finances?
As life expectancies are longer than ever and the cost of living remains elevated, some people will find that their income in retirement falls short of what they need – no matter how hard they have saved.
Or, they may find that they have some one-off, large expenses such as paying off their mortgage or essential home maintenance.
There are several strategies for dealing with this, most of which boil down to cutting down on living costs, for example by downsizing to a smaller home or reducing spending, or finding a way to access extra money, for example by working for longer.
Another option open to homeowners aged over 55 in the UK is equity release.
Unlocking value: A lifetime mortgage allows homeowners aged over 55 to access some of the money tied up in their home through a tax-free cash loan
The most common type of equity release is a lifetime mortgage, which allows them to access some of the value tied up in their home through a tax-free cash loan.
This does not need to be repaid until the last homeowner dies or enters long-term care.
Monthly repayments are optional, giving customers the choice to either make regular repayments to reduce the interest that is accrued over time, or to let the interest roll up which will increase the amount owed. They retain 100 per cent ownership of the property.
‘Understanding the options available through your property could make a big difference to your long-term financial security,’ says Ms Walsh.
Taking advice from a professional is a requirement when taking out an equity release mortgage. It is good idea to speak to a whole-of-market adviser, such as Royal London Equity Release Advisers, as they will be able to show you a range of options from many different providers.
Walsh adds: ‘Getting a whole-of-market view is recommended when exploring equity release, as this ensures you can compare the widest range of products available to you.’
Choosing a product from a member of the Equity Release Council means that it adheres to the industry body’s safeguards which include a no-negative equity guarantee and fixed or capped interest rates.
It is important to know that equity release is a loan secured against your home. It will reduce the value of your estate and could affect your entitlement to means-tested benefits
What do borrowers use equity release funds for?
As well as supplementing their retirement income, there are a wide range of other reasons why some older homeowners choose equity release.
One popular motivation among homeowners is using the money to pay off their existing mortgage, meaning they will not have to worry about the monthly payments in retirement and therefore have a bigger monthly budget.
Renovations: Some equity release customers use the money to make their home more comfortable as they head into retirement
Others use the money to make improvements to their home, for example to adapt it to make it more comfortable for older age. Giving money to friends and family as a ‘living inheritance’ is another common reason for release equity.
Walsh adds: ‘For many, their home is their largest asset, yet it often sits untapped.
‘Our advisers help UK homeowners explore how releasing some of that value could be used in retirement to clear an existing mortgage, make essential home improvements, or create a financial buffer. The key is finding a balance that supports your lifestyle while keeping your plans on track.’
Depending on the plan they choose, borrowers can take the money as a tax-free lump sum, or use a drawdown facility where they can take out money as and when they need subject to the lender’s criteria. This has the benefit of not paying interest on money that has not yet been drawn down, although the overall interest rate may be higher to reflect this.
Some equity release borrowers find this sort of drawdown facility can be a useful financial backstop for emergencies, Walsh says.
‘Unexpected expenses are a reality for most retirees. Whether it’s a new boiler or healthcare costs, having access to funds can ease stress,’ she says.
‘This is why many of our customers explore the option of a drawdown when releasing equity, it allows them to set aside an amount they can access when needed, without compromising their overall finance.’
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