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  • FIRST POST
    • n12maser
    • By n12maser 13th Sep 17, 2:19 PM
    • 19Posts
    • 3Thanks
    n12maser
    pension vs property dilemma
    • #1
    • 13th Sep 17, 2:19 PM
    pension vs property dilemma 13th Sep 17 at 2:19 PM
    Hi all,

    Longtime lurker, 1st time poster - thank you all for the advice I've benefited from by skimming the forum over the last fews years. Now I've got a retirement planning situation which has me stumped and hoping you guys can offer some valuable insight/advice!

    Am aged 35, earning £50k salary likely soon to increase to £65k when I move jobs. Partner (unmarried) is same age and works part-time earning £27k. Have only started taking my pension seriously since the start of this year, putting in 7% and company puts in 3% - total equates to £400 per month. Have £7k pot so far, invested in some historically well-performing US index funds via Zurich. My partner has very little in her pension and I think only puts a few % of her salary in each month. We have one child and receive £82 child benefit a month. We're aiming to get married in the next few years btw.

    Property-wise we joint-own our residence worth aprox £485k with a £130k joint-mortgage, and I own a flat (used to live in from 2007 to 2014, now an investment property) worth aprox £520k with an interest-only £200k BTL mortgage. After various expenses the flat tends to create a net income of around £4 to £5k a year. Was bought for 250k in 2007 so over 10 years it's doubled in value. So far it's had no gaps in tenancy as in a pretty desirable area of north London.

    Consider myself exceptionally privileged to be in this position, but that doesn't stop me wondering how best to juggle things longterm. The question - to best plan for our future, should I sell the flat now and whack all of the equity left over into my pension at £40k per year (and/or S&S ISAs) to benefit from the various tax breaks etc. OR should I hang onto the property for the next 30 years as historically it has performed exceptionally well as an investment, despite the fact that it will be subject to a large Capital Gains bill if I were to finally sell it as we approach retirement.

    Or other options I haven't thought of?

    One other thing I'm considering is selling the investment flat, keeping £100k cash to use towards a deposit on our next family home (to help reduce monthly payments on the inevitable larger mortgage), and put the remaining £200kish equity left over into my pension and/or ISAs for our retirement.

    Thoughts?!
Page 1
    • Ray Singh-Blue
    • By Ray Singh-Blue 13th Sep 17, 2:27 PM
    • 341 Posts
    • 443 Thanks
    Ray Singh-Blue
    • #2
    • 13th Sep 17, 2:27 PM
    • #2
    • 13th Sep 17, 2:27 PM
    In retirement, a property provides a place to live. A pension provides an income. Most people want both.

    Do you have a destination point in mind - perhaps a minimum bar? For example, as a minimum.aged xx you may want to have a house to live in, owned free and clear, and a pension providing £xxK per year in today's terms.

    Once you have the destination in mind you can plan the most tax efficient journey
    • n12maser
    • By n12maser 13th Sep 17, 2:48 PM
    • 19 Posts
    • 3 Thanks
    n12maser
    • #3
    • 13th Sep 17, 2:48 PM
    • #3
    • 13th Sep 17, 2:48 PM
    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?
    • atush
    • By atush 13th Sep 17, 3:06 PM
    • 16,334 Posts
    • 10,083 Thanks
    atush
    • #4
    • 13th Sep 17, 3:06 PM
    • #4
    • 13th Sep 17, 3:06 PM
    I would up your pension, aim to put in all your income over the HRT threshold (is it 45K this year?) plus the amount of your rental income. So 24-25K in total of your contributions. USe the 4-5K in income from t he rental to live on, and replace the extra out in your pension.

    While rental income can not go into a pension, nothing stopping you putting more of your earned income in t he pension, even if the last few K only get BRT relief.

    The reason to do this is you need to catch up as you are behind at yoru age with nly 7K, plus you want to keep 100% of your CB.
    • dunstonh
    • By dunstonh 13th Sep 17, 3:11 PM
    • 89,606 Posts
    • 56,105 Thanks
    dunstonh
    • #5
    • 13th Sep 17, 3:11 PM
    • #5
    • 13th Sep 17, 3:11 PM
    We have one child and receive £82 child benefit a month.
    Not for much longer. Your income will wipe that out with a child benefit charge. Unless you contribute to a pension that is to get some or all of it back.

    Have £7k pot so far, invested in some historically well-performing US index funds via Zurich.
    You are a very long way off where you would expect to be and your contribution is lower than ideal to catch you up.

    Investing in one market is bad investing and likely to result in lower returns over the long term as you are putting all your eggs in one basket.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • n12maser
    • By n12maser 13th Sep 17, 3:15 PM
    • 19 Posts
    • 3 Thanks
    n12maser
    • #6
    • 13th Sep 17, 3:15 PM
    • #6
    • 13th Sep 17, 3:15 PM
    Hi atush, thanks for your recommendation.

    I suppose the barrier to this is there's no way we currently have an extra £1600 a month to put into my pension, what with aprox £800 per month on childcare costs (albeit going down next year), £430 mortgage, £120 council tax, food, car-related running costs etc.

    Maybe that means I need to lower my retirement income expectations in order to get a suitable balance between 'living in the moment' and enjoying our life right now vs also planning sensibly for retirement?
    • n12maser
    • By n12maser 13th Sep 17, 3:21 PM
    • 19 Posts
    • 3 Thanks
    n12maser
    • #7
    • 13th Sep 17, 3:21 PM
    • #7
    • 13th Sep 17, 3:21 PM
    Investing in one market is bad investing and likely to result in lower returns over the long term as you are putting all your eggs in one basket.
    Originally posted by dunstonh
    Thanks for your advice. One question - is my situation not two markets currently - investment property + shares? Realise that's still not particularly diversified.
    • Linton
    • By Linton 13th Sep 17, 3:37 PM
    • 8,502 Posts
    • 8,450 Thanks
    Linton
    • #8
    • 13th Sep 17, 3:37 PM
    • #8
    • 13th Sep 17, 3:37 PM
    Thanks for your advice. One question - is my situation not two markets currently - investment property + shares? Realise that's still not particularly diversified.
    Originally posted by n12maser
    Your shares presumably are the £7K in the US index fund. Why just the US equity market? There is a whole world out there. That I suspect is the lack of diversification that was being questioned.

    In terms of balancing life and long term as you mentioned in another post - I suggest you set up your pension amount so that your standard of living now matches your standard of living after retirement assuming you retire at your desired age. At the moment you are a long way from this.
    • dunstonh
    • By dunstonh 13th Sep 17, 3:59 PM
    • 89,606 Posts
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    dunstonh
    • #9
    • 13th Sep 17, 3:59 PM
    • #9
    • 13th Sep 17, 3:59 PM
    is my situation not two markets currently - investment property + shares?
    Two asset classes but your shares are one market. i.e no Asia, Japan, Emerging Markets, UK, Europe etc
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • elephantrosie
    • By elephantrosie 13th Sep 17, 4:39 PM
    • 372 Posts
    • 102 Thanks
    elephantrosie
    noobie here.


    how much of our salary are we allowed to contribute to pension a year? I presumed the whole point is to lower the tax?
    Another night of thankfulness.
    • n12maser
    • By n12maser 13th Sep 17, 5:09 PM
    • 19 Posts
    • 3 Thanks
    n12maser
    Slight update - having the run the figures I think we only need £40k a year between us to live very comfortably in retirement.

    Just been on the moneyadviceservice calculator and if I were to sell the 2nd property now, left with aprox £300k cash after the BTL mortgage & CGT & fees paid, then add that to existing £7k pension pot (over the next few years) my pension pot would be £307k.

    According to the calculator, with a monthly pension contribution of £500 (increasing by 2.5% a year) over the next 33 years (with average growth of 5% per year), the pension pot would result in an aprox £40k income per year age 68 onwards. £500 contribution per month is no problem in terms of current affordability.

    Plus based on the advice above I would look to diversify the shares in my pension across more than just the US market. By the way, the reason I chose a US index fund similar to the S&P 500 is because Warren Buffet said he'd advise his children to put 80% of their savings into an S&P 500 index tracker and the remaining 20% in bonds. Ok so I haven't done the bonds bit yet.......

    How does that sound to the experts among you?
    • jimjames
    • By jimjames 13th Sep 17, 5:31 PM
    • 12,194 Posts
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    jimjames
    By the way, the reason I chose a US index fund similar to the S&P 500 is because Warren Buffet said he'd advise his children to put 80% of their savings into an S&P 500 index tracker and the remaining 20% in bonds. Ok so I haven't done the bonds bit yet.......
    Originally posted by n12maser
    Just to pick up on this, I'm assuming Buffet said that because he is based in the USA. UK investors are more likely to want at least some local investments to reduce currency risks - although Brexit vote showed the impact that can have on UK market too
    Remember the saying: if it looks too good to be true it almost certainly is.
    • dunstonh
    • By dunstonh 13th Sep 17, 6:04 PM
    • 89,606 Posts
    • 56,105 Thanks
    dunstonh
    By the way, the reason I chose a US index fund similar to the S&P 500 is because Warren Buffet said he'd advise his children to put 80% of their savings into an S&P 500 index tracker and the remaining 20% in bonds. Ok so I haven't done the bonds bit yet.......
    Buffet said it to a room of US investors subject to US taxation. Taxation in the US for investments is different to the UK. US investors are also notoriously home biased. Unlike UK investors domiciled in Sterling. It also needs to be noted that Buffet himself does not follow that strategy for his own investments and those of his clients.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • n12maser
    • By n12maser 13th Sep 17, 6:40 PM
    • 19 Posts
    • 3 Thanks
    n12maser
    Thanks for the context, did not know that. Am an investment novice!
    • Keep pedalling
    • By Keep pedalling 13th Sep 17, 7:11 PM
    • 3,954 Posts
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    Keep pedalling
    Thanks for the context, did not know that. Am an investment novice!
    Originally posted by n12maser
    While you are in sorting out the future mode, have you both got wills in place?
    • ChesterDog
    • By ChesterDog 13th Sep 17, 7:25 PM
    • 800 Posts
    • 1,447 Thanks
    ChesterDog
    Just to pick up on this, I'm assuming Buffet said that because he is based in the USA. UK investors are more likely to want at least some local investments to reduce currency risks - although Brexit vote showed the impact that can have on UK market too
    Originally posted by jimjames
    It should also be noted that WB's advice was to people who will be inheriting billions of dollars as a starting point.
    I am one of the "Dogs of the Index".
    • n12maser
    • By n12maser 13th Sep 17, 7:25 PM
    • 19 Posts
    • 3 Thanks
    n12maser
    No but thanks for raising we have wills on our radar to do it in the next few months. Am aware of I got hit by lightening nothing would go to my partner at present
    • Keep pedalling
    • By Keep pedalling 13th Sep 17, 7:42 PM
    • 3,954 Posts
    • 4,313 Thanks
    Keep pedalling
    No but thanks for raising we have wills on our radar to do it in the next few months. Am aware of I got hit by lightening nothing would go to my partner at present
    Originally posted by n12maser
    It's worse than than that, you would also lumber her with managing the financial mess you would leave behind with all your assets tied up in trust for your child until he/she reached 18.

    Although the chances of you dying young is low the consequences of it happening are likely to be disastrous, don't put it off for a few months, as those months tend to turn into years with far too many people.
    • Alexland
    • By Alexland 13th Sep 17, 10:19 PM
    • 700 Posts
    • 437 Thanks
    Alexland
    Your pension is exceptionally low for your age, you are very exposed to UK house prices (building up a big capital gains tax liability?) and you are missing out on substantial tax breaks.

    The trick with pensions is to make above average contributions gradually over many years to optimise your tax, national insurance and child benefit in each year. We are also in our 30s and this year I am putting around 35k into my pensions and my wife is investing 25k into hers. We don't have a BTL but we do own 80% of our forever house.
    Last edited by Alexland; 13-09-2017 at 10:29 PM.
    • fiisch
    • By fiisch 13th Sep 17, 10:39 PM
    • 201 Posts
    • 79 Thanks
    fiisch
    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.
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