Pension: savings but small income

tomleighmartin

dear All,

I am posting this question on behalf of my mother, I feel she is badly prepared for her retirement and is being very slow to act...

Situation is as follows:

She is a widow of 55 years old, savings of approx. 120k, a house worth approx. 400k. She will receive a state pension and her employer (local council) pension, however even with the 2 pensions she will have to move houses etc in order to reduce living costs.

we are looking for the best way to invest / use her saving to generate an income and would appreciate any thoughts you may have....

The option thats springs to my mind, is to buy a second house to rent. maybe with a small mortgage while she is still working.

Many thanks in advance for any suggestions

Tom

somethingcorporate

Does she want to be a landlord? It is a lot more complicated than buying a house and just bringing in the cash.

Yields are traditionally around 5-6% which you can get pretty close to with sensible investing over the long term.

Linton

How much extra per year does she need to provide a minimal acceptable standard of living?

I dont own any rented houses but understand that it is not a trouble free investment. Risks such as gaps in lettings, tenants failing to pay, tenants trashing the place come to mind. Any income would be subject to tax and there are agents and repairs to be paid for. Also it is illiquid: should a large lump sum be needed for any reason selling a house quickly is rather difficult. So I suspect that there are better ways of supplementing her income. Once we know her needs it would be easier to discuss the options.

tomleighmartin

somethingcorporate wrote: »

Does she want to be a landlord? It is a lot more complicated than buying a house and just bringing in the cash.

Yields are traditionally around 5-6% which you can get pretty close to with sensible investing over the long term.

Does she want to be a landlord?:in a nut shell NO. I think buying a house, then managing or even dealing with a letting agency would be a huge stress for her.

Thats very interesting what you mention about returns on property.

thanks for your post

tomleighmartin

Linton wrote: »

How much extra per year does she need to provide a minimal acceptable standard of living?

I dont own any rented houses but understand that it is not a trouble free investment. Risks such as gaps in lettings, tenants failing to pay, tenants trashing the place come to mind. Any income would be subject to tax and there are agents and repairs to be paid for. Also it is illiquid: should a large lump sum be needed for any reason selling a house quickly is rather difficult. So I suspect that there are better ways of supplementing her income. Once we know her needs it would be easier to discuss the options.

I am not 100% on what income she needs or wants - valid point, I need to know for this exercise, I will find out.

As was previously mentioned, renting a house means being a landlord and all that comes with it.

The way I have imagined it could go is that she buys to let within the next 12 months. Over five years a small mortgage is paid taking her to 60 y/o, at this point she should start thinking about down sizing from our family home - buying a place for herself and saving the balance.

Meaning she arrives at 65 y/o - with a house to live in, a rental place, and savings.

Thanks for your post

margaretclare

I would strongly advise moving to somewhere smaller and more manageable before she gets much older. This is from experience - myself, and other people I've been in contact with. I would not want all the hassle and aggro that comes with being a landlord. As you get older you need to simplify your life - why make things any more difficult than they need be.

If she gets full SRP plus LGPS she won't be too badly-off, but what she doesn't need is a house that's too big for her/costs too much/is too inconvenient. Now is the best time to make these kinds of changes, while she's still relatively fit and agile.

She may, of course, have a new lease of life. I was widowed in my late 50s coincidental with redundancy, had a mortgage to pay, but I remarried in my mid-60s so life is not necessarily over!

xylophone

I think I agree with Margaret Clare that if the house is already too big, the best time to move is now while she is fit and relatively young.

Think about amenities, how close she would be to services etc and the kind of property that would be easy to manage/economical to heat etc as she gets older.

Even if the home she found required major work, she would have the time, means and energy to have it done.

I would not buy an additional property just for investment purposes as she has no desire to become a landlord.

Your mother might benefit from professional advice tailored to her circumstances.

Downsizing now would give her additional capital from which an income could be obtained and I should think that with that and her state/occupational pension she could be quite comfortable.