However, there can be various downsides to equity release which mean it may not be the best solution for everyone.
In order to make an informed choice about whether or not to use equity release, you need to know what alternatives you have.
Here we look at other potential sources of retirement income (excluding your pensions), in particular those that may relate to your home.
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The most obvious alternative to equity release is to downsize – i.e. sell your current home and move into a smaller property (or at least one that is less expensive).
When you no longer have to earn your income and can draw your pensions instead, you have the freedom to live potentially anywhere – so could choose somewhere with much cheaper house prices, and pocket the difference.
Downsizing can mean you save in other ways too, such as maintenance, running costs and perhaps Council Tax too.
Though it can’t fund your retirement completely (unless your original home is a mansion or a central London flat!) it can supplement your pension income sufficiently to help it last out your retirement.
Of course, there are costs involved in moving home, and moving is also stressful. The emotional ties to your current home and area may also be very strong, so downsizing often isn’t as easy as it may sound.
Rent out a room in your house
If you’re not sure whether downsizing is right for you, you could still generate an income from your house by letting out a room (or more than one).
The government’s Rent a Room Scheme allows you, as a homeowner, to earn up to £7,500 each year from letting furnished accommodation, tax-free.
Of course, there are significant responsibilities involved in renting out rooms to people, so it’s important to do your research carefully before jumping in.
The details are important, because the way in which you share your property will affect the nature of the tenancy in terms of tenant rights and how easy it would be to end the agreement.
There are of course drawbacks to sharing your living space with someone else, even if you grow to know and like them as a friend.
Perhaps the most important factor is your choice of tenant(s), and this ultimately will come down to your own judgement – and perhaps a little luck.
Even after you’ve retired from your main career, you may not be ready to stop working altogether.
Now that you are not solely reliant on earned income, it may be time to put your ‘side hustle’ in action, or turn some of your hobbies into money-spinners.
Regardless of whatever other marketable skills you may have, retired people in general have one very saleable asset: they’re around more of the time and have more time flexibility.
This opens up various business opportunities ranging from dog walking and pet feeding to home tutoring, gardening, painting/decorating and many other in-demand services.
So don’t underestimate your earning potential just because you’ve quit your nine-to-five.
Find out more about starting a business in retirement.
Get a retirement interest-only mortgage
With a lifetime mortgage, there are usually no monthly repayments and the interest compounds over time – meaning there is a larger sum to repay at the end of the mortgage term.
With a retirement interest-only mortgage, you will borrow a large lump sum and then make monthly payments that pay off just the interest on the loan.
This way, when your home is finally sold (e.g. when you die or move into long-term care), the amount repaid will be the same as the amount you borrowed. This should leave more of the value of your home for your loved ones to inherit.
It’s relatively easy to get a retirement interest-only mortgage, as you simply have to prove that you can afford the monthly interest repayments.
Use other savings
It may sound obvious, but using up your other savings is often preferable, at least initially, to using other sources of money.
For example, if you have a private pension pot, any remaining funds in it will be passed on free of inheritance tax (IHT) when you die.
For this reason, some people choose to spend other savings first and use up their pension last of all, to maximise the amount they can leave to their loved ones.
One way of saving for retirement in parallel with your pension is the Lifetime ISA (LISA).
Most commonly used for saving for a first home, it can be equally useful as a retirement savings vehicle.
Everything you save receives a 25% bonus from the government (similar to the amount added to a pension in the form of tax relief) and you can access it without penalty from the age of 60 (and/or when you buy your first home).
A LISA has one key advantage over a pension, which is that the money you withdraw from it doesn’t count as income, so isn’t taxed. (Pension income is taxed as ordinary income, except for the first 25%).
The disadvantage is that you can only pay in up to £4,000 a year, or £128,000 over your lifetime. Nevertheless, a LISA can be a valuable addition to your pension savings, provided you start one soon enough.
A financial adviser can give you one-to-one advice on the best ways to provide yourself with a comfortable income in retirement.