If you’ve retired and you’re doing all you can to enjoy life to the full, or you plan to do so in the very near future, you may have noticed a common problem affecting many other people in the same boat today – and that’s a lack of income.
In today’s environment of record low interest rates, many retirees – and particularly early retirees – are asset rich-income poor, and they’re wondering what to do about it.
There are various options, but very few of them are 100% safe if you need a decent return.
For example, you could invest in high yielding blue-chip companies, but which can you trust to keep up the dividend payments? Remember, the higher the yield figures, the more the market is generally betting the return won’t be maintained in the long run; you’re getting a better return for an elevated level of risk.
You could go slightly safer and invest in corporate bonds, but again, these aren’t completely safe and the returns are lower. As for gilts, in today’s market – who really knows? But the returns on the safest ones are miniscule anyway.
Perhaps you’ve looked at property to let? If you have, you’ll realise that the returns here, too, aren’t attractive enough to tempt most of us in – and you have the hassle factor that goes with being a landlord.
Perhaps the best advice is to see a good Independent Financial Advisor (IFA) and tell him or her that you’re looking for income. But before doing so – have a good think about how risk-averse you really are.
What is a home reversion plan?
One option a lot of people are looking at (and particularly those without dependents – or for whom leaving an inheritance isn’t particularly important) is home reversion plans
With such a plan, you sell all or a percentage of your house to a specialist company for a fixed sum or a monthly income (or a mixture of both) – though you retain the right to live in your home for the rest of your life.
If you opt for income, you would usually buy an annuity from the home reversion specialist company – so bear in mind that this is a weighted gamble on how long you plan to be around. In other words, if you pop your clogs soon after you’ve signed on the dotted line – you won’t get good value!
The other downside with this sort of scheme is that you don’t generally receive the full market value of what your house is really worth. Also, the younger you are and the better your health, the less you’ll get, understandably. There’s no such thing as a free lunch.