Scared of S&S ISAs

ladysailor

OK, I'm prepared to do some research into SIPPs. Can anyone suggest where I might be able to read an idiot's guide?

A propos investments vs. renting, I realise there would be headaches, but I thought since I have been in business for many years and haven't been in financial services at all, I would understand the renting headaches but would not understand the investment headaches.

Thanks in advance

dunstonh

As I understand it, when you take an annuity the capital does not increase over time. If you buy a property, the value of the property has a chance of increasing.

Dont buy an annuity then. You dont have to. You can remain invested to the day you die.

Can't see why you would need so many properties.

If you mortgaged buy to let then the lender is going to want their money back. So, whilst you hope the rent covers the mortgage, it doesnt do anything towards the capital. So, you have to sell the property in the future to repay the lender. Any gain you make is then subject to capital gains tax. So, the net capital gain in real terms is actually not enough by itself for you to live on in retirement.

I like the idea that the govt boosts the money paid into the pension, but I don't like the fact the money you take out is taxed or that the income you get from the annuity will shrink over the years due to inflation. At least the rent you charge on a property has the potential to increase in line with inflation.

If you dont buy a level annuity then you wont have to worry about inflation. Rental income is taxable and doesnt have tax relief on it. Pension income is taxable but the contributions get tax relief, the fund and growth from it is tax free.

ladysailor

dunstonh wrote: »

If you mortgaged buy to let then the lender is going to want their money back. So, whilst you hope the rent covers the mortgage, it doesnt do anything towards the capital. So, you have to sell the property in the future to repay the lender. Any gain you make is then subject to capital gains tax. So, the net capital gain in real terms is actually not enough by itself for you to live on in retirement.

I wasn't planning on getting a mortgage. The whole point was to save up and pay cash. Keep one property to live in, one to rent. Based on property prices where I live, and local rents, I think this should work. Or, if I go off for a l2 month or more cruise in my boat, I could rent both properties.

Later, if I feel too old to be bothered with tenants, I could sell the spare house and invest the capital. Couldn't I? Probably be selling the boat then too.

Having followed up on comments made by you and others, I think my aversion is probably towards annuities rather than pensions. I am still trying to find some meaningful information on SIPPs and income drawdown.

Linton

The problem that annuities solve, and are the only guaranteed way of solving, is that of living too long - annuities pay for as long as you live. Any retirement provision based on personal investment returns has the risk that a combination of inflation and poor market (housing or equity) performance will substantially reduce your real income before you die, leaving you to live your final years in poverty.

If you are wealthy you can reduce the risk of running out of money before you die to low proportions and so be able to take advantage of more efficient, though riskier, ways of financing retirement. As always in life, the richer you are the better deals you can get.

I would suggest that you consider ensuring an absolutely minimum acceptable income is covered by a combination of state pension, annuities and defined benefit pensions.