Wednesday, 29 November 2017 12:20

Which will work for you - a property portfolio or a peachy pension?

It is something we all have to think about whether we want to or not – getting old and funding our old age.

For some, retirement is just around the corner, for others, it is decades away but one thing is for sure, all will quickly need to know what options are available that will best look after their financial interests in the long term – both from an individual perspective and a family point of view.

When people make it clear that they intend to retire, work colleagues and family members are quick to assume that they have been paying into a pension and that is that. ‘Pension’ is the buzz word that tends to go hand in hand with people looking to retire, and to be fair, this is what the majority of people tend to rely on in their retirement days – either a private or firm pension, or both.

But what if we told you that it is quite common nowadays for people to look to other ways to fund their out of work retirement plans? It’s true, other methods are becoming increasingly popular, with the most common being investing in property.

With this in mind we’re going to try our best to find out what the benefits are to each approach and whether or not it will work for certain circumstances.

So, Property portfolio or Peachy pension?

In all honesty both have pitfalls and both have good points so it is all about assessing these said points and seeing which one would best suit your lifestyle. We should also mention that there are other avenues other than these two situations that we have highlighted which should also be checked out as possible income streams in retirement.

Going back to pension vs property, a couple of decades ago property would have definitely come out on top in any battle between the pair. This is because property prices were doing well and the buy to let market was seeing real gains for landlords. But what about now? In all fairness, it has probably evened up a little bit. The reason that property investment isn’t as shouted about is mainly because of saturation and the fact that so many people have already ‘been there, done it’. A couple of decades ago, if you got into property investment you had hit the jackpot, the market wasn’t saturated with landlords and you would have made money – no doubt about it. Nowadays, there are millions of buy to let landlords all competing for the same things and the truth is property is quickly drying up. Competition means less gains overall so it certainly isn’t as lucrative as it once was, even though there is still plenty of money to be made should you buy wisely and have the ability to foresee bargains and potentials.

One of the biggest dampeners that has been put on the property investment route in recent months is tax. The government really went to town on landlords in the latest budget and many things changed that saw some landlords, not out of pocket by any means, but shorter in the pocket than they were beforehand. If you have a property over £41,000 and you don’t declare this as the property where you are living, you will have to fork out extra stamp duty – this is just one example. A couple of other things include; possibility of paying capital gains tax if you flog the rental home for a profit and income tax when you earn money from renting the property out.

From a non-financial point of view, property investment is a little harder work than just investing in a pension (which pretty much looks after itself once you have agreed to pay into it) With property, you have to have a lot of research time to ensure you’re investing in the right properties and you also have to liaise with many different people when it comes to maintenance as properties need input from landlords.

Even though it may not be as quick and easy to make money from property as it may once have been, this absolutely does not mean to say that there isn’t value in taking this approach.

Property is a very British affair. We love our homes and there will always be money to be made in this avenue. Everyone needs a home and because of this there will always be demand for property, which in turn means money to be made for property investors. It is also the case that should you be able to sell the property after making a lot of money from the original purchase price you will be able to get a lump sum direct into your bank account at any time and spend it how you wish.

We seem to be talking a lot about property, but make no mistake, pensions and their popularity in retirement are still just as keen.

Unlike property, pensions don’t fluctuate, you know when you leave work what is in your pension and that is that. This is a real safety net for some people and gives them a sense of security with their finances.

There is also tax relief on pension savings.

Unlike property investment whereby you can sell up and free up money at any point, pensions, however, have a ‘padlock’ which means you won’t be able to access the money until you are aged 55 – this is frustrating if you feel you want to retire early. You should also bear in mind that this threshold could change at any given time should the government say so.

Ultimately, there are upsides and downsides to both forms of retirement planning, the one thing that will more than likely sway you is the situation that you find yourself in at the time.

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