pension vs property dilemma

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  • fiisch wrote: »
    I'd keep the investment property personally.... If (and I guess it's a very big if) you still have it at 65, that's a continuing income and in theory it'll continue to go up in value.

    Your pension pot isn't great, but neither is your employer's contribution - I think you need to find a way to up regular contributions (e.g.: when your childcare costs decrease) rather than take drastic action and sell the flat.

    Thanks fiisch. This feels very pragmatic advice. Just been looking at your post history and it appears we have a fair bit in common - both frustratingly late to the pensions game, both struggling to rein in spending esp with a child sucking wallet dry ;), and both with a serious week spot for fast cars :beer: mine's a 1995 Porsche 993, high miles but still nicely appreciating in value, so hope it's accepted by the MSE crowd as a justified 'one indulgence'!!
  • I would keep the rental property but any income from this plus a larger percentage of your pay I would pay into a pension.

    You've also just missed out on a really good 6/7 years of stock market performance!
  • Alexland
    Alexland Posts: 9,653
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    edited 14 September 2017 at 9:01PM
    Royal Londons survey should be of no comfort. On your incomes you should be aiming much higher.

    In isolation your pension pot so far is exceptionally low compared to the what is likely to be needed as income by most people.
  • No comfort in the Royal London figure, I understand I'm way short. But people coming to this thread in a similar situation shouldn't be misled with inaccuracies.

    Now that you've rephrased what you said before it's a fair point!
  • chucknorris
    chucknorris Posts: 10,785
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    edited 14 September 2017 at 7:08AM
    n12maser wrote: »
    Hi Ray,

    Thanks for your reply.

    Minimum aged 65 I'd like us to be able to continue living in our 'forever home' which we will probably have already been living in for at least 10 years before that, and for it to be mortgage free or nearly paid off. I don't want us to have to sell it to downsize, thus unlocking equity to live off in retirement.

    This is a somewhat of a shot in the dark as would need to do the calcs, but in today's terms I'd like us to be able to live as comfortably as we do now..so maybe a joint pension income of aprox £50k net?

    What I did was worked out how much equity I would receive after paying all the fees and CGT, then compare the anticipated yields between property and the alternative investment. Although we decided last year was the time to start selling, and would do so when they became vacant (and we sold two properties). After receiving notice from a tenant from our highest yielding property, my spreadsheet showed that I would have to earn 7% on the alternative investment, mainly because I lost use of the significant CGT (it would no longer be working for me) so I decided to re-let that particular property, I'll sell it when the market is doing reasonably well, hopefully in about 5-10 years (when I am between 65 and 70).
    Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop
  • Thanks ChuckN, super helpful perspective.

    When you calculated the equity left after CHAT and fees, do you mean if selling now or do you mean a prediction for selling in run up to retirement based on predicted house price growth? Think u mean the first of these but just want to clarify...
  • CGT not CHAT, bl##dy phone auto-correct :)
  • dunstonh
    dunstonh Posts: 116,040
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    Need to call you out on this as it's simply not true. A Royal London survey in 2015 revealed the average pension savings of a 35 year old in the UK to be £14k. Source - The Guardian (can't yet post link as a new user)

    Doesnt matter what others have. There is one of those sayings that you should aim for £35k by 35 to be on track.

    The problem with surveys is that you get a snapshot of a limited number of people of what they think they have. Many of those will have more than one pension. Maybe a final salary scheme which has no value and a personal pension which is £14k. So, the £14k pension gets recorded.

    Another way the figure is often misrepresented is that they take the average value of a pension at that age. Again, this is very unreliable as people frequently have multiple pensions. So, they may have two worth £15k each but the averaging of pot values doesnt show £30. It shows £15k.

    In some areas of the country, there was a saying that you got a payrise on retirement as a little bit of pension saving and the state pension meant they ended up with more money in retirement than they had when working. In low paid areas (East Anglia, Wales, North for example), many people do not need large pots as the state pension and relatively small personal pension will give them enough.

    For the level earnings being discussed on this thread, the pension value is far behind where you would expect it to be if on track.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • "Your pension is exceptionally low for your age" can be taken two ways - the first meaning "£7k in a pension is way behind the majority of people your age in the UK"....this is what I took the poster to mean, so challenged it (maybe wrongly based on my own assumption), as it's not true. That survey took data from over 1000 30 to 40 year olds, all in work. That's a pretty big pool as far as surveys go. I agree, they don't always give the full picture but they still give a meaningful indication. Even if the actual average is actually something like £25k, it's still not the case that £7k is exeptionally low for a 35 year old in the UK.

    Either way, the poster has since clarified what was meant by this phrase is "Your pension is exceptionally low for what it should be for your age to retire how you want to", which is fine and I agree, I'm way behind!!

    Getting things back on track, where my head's at right now is hanging onto the property but putting all of the profit from this BTL into my pension pot. I'm predicting that even after captial gains tax it will do better than selling now and dumping any cash left in pension. Albeit my calcs are based on two massive assumptions - average annual growth of 8% (not adjusted for inflation) of shares and that the property will double in price every 10 years, like it did the last 10 years.
  • dunstonh
    dunstonh Posts: 116,040
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    That survey took data from over 1000 30 to 40 year olds, all in work.

    So, on average, that will be people earning around £22,000 a year.
    That's a pretty big pool as far as surveys go.

    And all the inaccuracies and flaws that come with such a sample.

    Take 1000 city dwellers and you get a totally different set of results to 1000 that live in rural areas.
    Even if the actual average is actually something like £25k, it's still not the case that £7k is exeptionally low for a 35 year old in the UK.

    £7k for a 35 year old is exceptionally low. It cannot be dressed up any other way. Nil is exceptionally low for a 35 year old and there are plenty of people that havent done anything at 35. It is not going to help you to play statistics using random samples of people with large margins of error. Look at your scenario and with your level of income, it is very low. Although, at least you are now looking at it.
    I'm predicting that even after captial gains tax it will do better than selling now and dumping any cash left in pension.

    In your case, you already have the property, so you would be looking at a position of disposal and the costs incurred with that. So, that is a handicap position to be in.
    Albeit my calcs are based on two massive assumptions - average annual growth of 8% (not adjusted for inflation) of shares and that the property will double in price every 10 years, like it did the last 10 years.

    Property does not normally double in 10 years. Investments do more often than not double (assuming typical spread for someone with 30 or more years to go). Landlords are being targetted by the Govt. Higher rate taxpayers losing the ability to full offset interest for example.

    I think you need a proper calculation as the pension may well be the better option but until that calculation is done you will never know. (pension getting higher rate relief and returning child benefit you are about to lose is bigger than the CGT you are likely to pay. The dividend yield is similar to rental yield but tax free in the pension but taxable on the property. Long term growth (rather than short term trends) tends to put equities better than property - returns unknown but even if you assume broadly similar, you could look purely at the tax position to see what the result is.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
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