property vs pensions: planning for your retirement

The property vs pensions debate seems to have been going on since people realised they could retire. And there are strong arguments and advocates on both sides. So what you as an individual must consider is what is good for you and your family.

Property vs Pensions: what you need to consider before planning for your retirement

1. Consider the risks

There is a perception that pensions can be ‘ruined by the banks’ and distrust of something that you can’s actually trust. Where is your money actually? The truth is that pensions are spread across a range of investments to mitigate the risk. And many pensions providers give you the option to choose the level of risk that you want to take.

The pensions industry is heavily regulated. But that doesn’t mean that there aren’t failures. In the case of property, you have to weigh up the return, your oncosts like mortgage repayments, management fees, and so on. And what happens if you have a problem tenant? There are some tips here on dealing with problem tenants

The key is to treat your property investment portfolio as a business

2. What are the benefits?

So you’ve started your retirement planning and the property vs pensions question has come up. Of course both options have their benefits.

Pensions are designed specifically for retirement and are regulated by the Pensions Regulator so that means that people are protected. Pensions are a low-cost option with tax breaks built in so that you can maximise your savings. And don’t forget that pension contributions are topped up by your employer through stakeholder pensions, and nothing is stopping you from topping up the pension you have as an employee or taking out your own private pension. If you are self-employed there are benefits for you as well. Speak to your accountant and financial adviser. They will be able to advise on how best to invest.

How can pensions and property investment benefit your retirement planning?

Property investment also comes with benefits. For the business savvy investor company structure plays a part and getting the right structure in place before you start can make a big difference to your tax liability. Your accountant can advise on this. Yes of course there are on costs with property investment, but instead of paying into your property pension pot you actually derive an income from it. The level of income depends on your investments. And you will own the assets in the form of property.

You can use the equity in this to build your portfolio which in turn will increase your retirement fund. Once you have paid your mortgage off you have the option to continue renting, or sell to realise the asset. Again take advice from an accountant on this to mitigate your tax liability. The key is to treat your property investment as a business.

Property vs Pension
Property vs pensions: Releasing equity from your home to fund your investments

To find out more about this investment model contact a member of our team

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3. Calculate Property vs Pensions returns on investment

Your pensions provider will have data on all of your investment choices in your pension and can provide historical performance data and projections of how your pension should perform. Of course, they can’t predict events like the banking collapse in 2008, or Covid-19 crisis and how they affect the markets in the short term.

More importantly though, pensions over the long term are generally stable. So forecasting what your pension pot will be when you retire can be done with a reasonable degree of accuracy. So the key is to take advice from your pension provider. Which? also has a pension calculator which can give you an indication of what your pension will be.

In terms of your property investments and their value to your retirement, taking professional advice is key. If your objective is to create a property portfolio to fund your retirement, there may be different considerations for funding university fees for your children, for example.

Working with an accountant with experience in property investment and a property investment consultant can mean that your investments will perform over the long term. The housing market is cyclical and forecasting so it is possible to estimate house prices, rental values, and so on. The key is to treat your investment portfolio as a business. Careful business planning, forecasting, and taking professional advice will ensure that your investments perform as planned for your retirement.

4. Property AND Pensions or Property vs Pensions?

What are you most comfortable with? You can choose the funds to invest in for your pension depending on the level of risk you are prepared to take. So why not take a more holistic approach to your retirement planning as well?

It may be that you look at a range of investments including pensions, investments like ISAs or Property Loan Notes, and property investment. That means that you can consider all of your options and what works best for you, your retirement plans, and your family.

5. How Hawkhurst Invest can support your retirement planning

Cashflow forecasting for property investment
cashflow forecasting

There are benefits and risks to any investment, and it's no different for property investment. Here at Hawkhurst Invest we don’t sugar coat. We’ll work with you to develop a property investment plan to meet your retirement ambitions. Our starting point is our cashflow forecasting. We take you through the process of looking at all aspects of your finances to assess your income and expenditure. That will help you to understand the risks, how property investment could benefit your income, and how it could impact if things go wrong. And from there we will work with you to develop a plan that can be implemented to help you build a property portfolio to fund your retirement.

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