Sources of Extra Income for Over-50's

Improve Family Finances through Equity Release or an Early Pension

May 20, 2009 Asa Ghaffar

Millions of over-50's are struggling to deal with shortfalls in family finances. An equity release plan or taking an early pension can help with financial difficulties.

According to Andrew Harrop in the Age Concern April 2009 report "One Voice: shaping our ageing society" unemployment amongst over-50's is growing 34.8% faster than other age groups. Furthermore, the likelihood of that person finding suitable employment decreases by 25 per cent with each passing year. Not having stable employment means that identifying a viable source of extra income is critical. This has led to many over-50's taking an early pension or seeking an equity release plan.

Taking an Early Pension Can Provide a Useful Extra Income for Over-50's

UK citizens aged over-50 can choose to unlock their pension prior to normal state retirement age. The process involves some complex calculations so seeking advice from an independent professional advisor can prove invaluable. This additional sum of money could help family finances and alleviate financial difficulties by providing the following benefits:

• A tax-free cash lump sum of 25 per cent of a pension pot.
• A taxable extra income that is paid monthly.

Whilst there is no legal requirement to do so, it is sensible to choose take the lump sum as it is paid free of taxation and can be invested to achieve an extra income. However, taking an early pension is not suitable for all over-50's as it can dramatically reduce retirement income. It is not suitable for everyone.

Where can Over-50's Invest a Tax-Free Lump Sum from an Early Pension?

A £300,000 pension pot will yield a tax-free lump sum of £75,000. Over 50's should choose tax-free investments, particularly if a higher-rate tax payer. Those seeking an extra income should consider investing up to £10,200 per annum in an Individual Savings Account (ISA).This sum of money can be invested per person.

Extra Income through an Equity Release Scheme

Homeowners who are seeking a cash lump sum or an extra income could achieve this objective with an equity release scheme. A reverse mortgage allows that person to continue living in the same home for their remaining years but benefit from a monthly sum of money to help with any financial difficulties.

It is possible to choose the percentage of property they wish to use should that person wish to leave an inheritance. It is important to remember that this income is taxable and can affect state benefit entitlements, such as pension credits.

Over-50's that are seeking an extra income should consider taking an early pension if their pension pot is sufficient. Homeowners can benefit from equity release, but it is important to consult an independent advisor to make sure that state benefits aren't lost and that the person understands precisely what it means for any inheritance.

The copyright of the article Sources of Extra Income for Over-50's in Personal Budgeting/Finance is owned by Asa Ghaffar. Permission to republish Sources of Extra Income for Over-50's in print or online must be granted by the author in writing.

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