Usin Property as part of your Retirement Plan

setmefree2

Hi

I thought I would canvas some views. In the light of the fact that it looks like there is going to be a (massive?) property crash I wondered how people view property as part of their retirement planing. Indeed, it's become quite common to hear that people use property as their "pension". So when they get to retirement age they hope to sell and use their profit to fund their retirement. I've, personally, seen the downside of this in the early 90's when my F-I-L got stuck in his large residential home as the house market died. He couldn't afford to stay in the house, he needed to release equity from the house but couldn't sell. I'm still 20 years away from retirement but from where I'm sitting it doesn't seem like such a great investment Any thoughts?

Dithering_Dad

usually you see the "My house is my pension" statement used by people who have made no pension provision and get a bit defensive about it. When you ask how their two-bed terrace will fund a retirement, they become a bit vague, mumbling about moving to Goa and living on a beach or living on a canal barge...

Further up the ladder, you find the people who have a large family home and intend down-sizing to a smaller house when they retire. What this group forget is that they move from their nice 4 bed detached with integral garage and wide driveway to a terrace house with all the parking and neighbour noise issues and probably move away from neighbours they have befriended. They may also find that their kids have other ideas and either live with then much longer than planned or have their children stay overnight with Granny and Granddad.

Another group will have a mixed portfolio of shares, bonds and property funds who may also add a couple of Buy to Let's to the mix. I may be in this group at some point, though the thought of messing about with tenants when I'm old puts me off a bit.

As far as falling markets are concerned, pensions are accumulated over a number of years/decades so any falls in a period are more than offset in gains. I bought my first house in '95 for 40k and sold it 7 years later at £140k. Identical houses in that street have subsequently peaked at around £200k, so it'd take a monumental crash to lose money in that scenario and we're only talking 13 years of investment. I've currently got 25 years to go before retirement so any property I buy now will be worth a fortune when I retire.

EdInvestor

setmefree2 wrote: »

In the light of the fact that it looks like there is going to be a (massive?) property crash I wondered how people view property as part of their retirement planing. [/qote]

It's not yet certain there will be a crash rather than a slowdown, and anyway this is a blip over the typical 25+ years of any long term pension type investment (as are stockmarket crashes for share-type pensions) .

So when they get to retirement age they hope to sell and use their profit to fund their retirement.

Not necessarily.Retirees look for income. Those investing in BTLs may elect just to continue to rent out.There is no need to pay off the mortgage (likely by then to be very small anyway), which acts as a tax break.

My F-I-L got stuck in his large residential home as the house market died. He couldn't afford to stay in the house, he needed to release equity from the house but couldn't sell.

These days an equity release (lifetime mortgage) plan would enable him to stay put and raise around 50% of the property's value in cash., repayable only after death.

A combination of different types of investments is the best thing to aim for in retirement IMHO.

bigbloke45

You buy a house to live in, not as a pension investment. Would you really want to "downsize" to some rough area, surrounded by noise and yobs. I don't think so!

I believe what you are really asking is "how can I justify not putting enough away to fund my retirement?

The answer is "you can't" your only other option is to become an MP or work for your local council so that taxpayers can fund your "Gold Plated" Final Salary Scheme.

setmefree2

bigbloke45 wrote: »

I believe what you are really asking is "how can I justify not putting enough away to fund my retirement?

No no no I wasn't. I was just wondering how people see property as part of their/anyone's retirement plan,;) in addition to their pension and other investments.

MPD

bigbloke45 wrote: »

The answer is "you can't" your only other option is to become an MP or work for your local council so that taxpayers can fund your "Gold Plated" Final Salary Scheme.

Don't forget those us in the Civil Service Pension Scheme. Lower contributions, higher benefits and we still get to retire at 60!:D

purch

"My house is my pension"

Ten years ago, no one would have dreamt of making a statement like that.

Ten years ago Property was still looked at as somthing you had to buy (ie. to have somewhere to live) rather than as an Investment

Ten years hence, who knows what the market will be like.

What any sensible person knows is that, like any market, Property will never ever be a sure fire one way bet !!!!

setmefree2

purch wrote: »

Ten years ago, no one would have dreamt of making a statement like that.

Ten years ago Property was still looked at as somthing you had to buy (ie. to have somewhere to live) rather than as an Investment

Ten years hence, who knows what the market will be like.

What any sensible person knows is that, like any market, Property will never ever be a sure fire one way bet !!!!

I think property is a very inflexibie investment and that makes it a problem. If I invest in shares, and the share market entered a bear period, I could ride the market out and sell just "some" of the shares at a loss (say) if I need the money; keeping the rest in the market until there was an upturn. With a property - if you go into a bear market and you need to sell - you have to sell the whole investment at a loss. This, therefore, makes property far more risky than shares.

setmefree2

EdInvestor wrote: »

Not necessarily.Retirees look for income. Those investing in BTLs may elect just to continue to rent out.There is no need to pay off the mortgage (likely by then to be very small anyway), which acts as a tax break.

Hi Ed,

Are the returns that great? In my street the monthly rent being paid by tennants look fantastic but when you look at the return on the investment (the MV of the house) it actually looks like less than 4%. Worse than a cash ISA. Obviously, I don't know if that's normal..so I'm assuming the LL are looking for capital gains too.

dunstonh

rental yields in the UK are typically around 5% before tax at the moment. As property value drops, that should push the yield up and there will come a time when the buy to let market looks attractive again. At the moment unless you are a builder or experienced enough to spot a bargain its not a market to be going into.

It is also worth noting that there will come a time when you have to repay the mortgage. If you dont have the funds that means you will have to sell and there goes your rental income. Plus, you will be subject to capital gains tax (if all has gone well) and the CGT changes this year have made long term taxation worse.

bigbloke45

Sorry MPD, I didn't mean to forget you!