Retirement – it should be a time to relax, do pleasurable things which have been put off for years and just enjoy life.
The only problem is that you need to plan well in advance of retirement to achieve that perfect retirement. And this can be stressful. You need to make some decisions; it’s just hard to know what the right decisions are. Scrap that, it’s impossible to know for certain.
In a bid to help with such stress, we will try in this article to outline some options, and give you a few things to think about but before we get going, a spoiler alert! We are the House Crowd; naturally we think investing in bricks and mortar is well worth considering. But, there are also risks, we’ll point them out too.
Choosing between an annuity and property is perhaps best summed up as mediocre certainty versus the promise of much more.
The returns on an annuity are not going to be great. We are in an era of uniquely low interest rates and increasing life expectancy.
You might see the interest rates as either a good thing or bad, but it’s hard to see the negatives in living a bit longer. Well, except that our good fortune to live in an age of medical advances, few wars and healthy diets isn’t half hitting those annuities.
You’ll need to do the exact sums based on your level of savings and the offers currently available, but it’s fair to say that the annual returns have plummeted since the early 90s and even in the past few years have seen double digit percentage falls.
In the early 90s, a pension pot of £100,000 might have provided an annual sum which could be lived on. Now that’s not going to be the case unless you want your retirement to consist of sitting in the cold and eating soup. The latest rates are available on the FT’s site right here.
But an annuity will give you certainty. We read an article claiming that almost 20% of people alive today in the UK will live to be 100. Sounds OK doesn’t it, but if we are all going to live for decades after retirement it’s going to be nice knowing that some money at least is guaranteed.
After all, it might not be that smart relying on state pensions given those that are left working are going to be supporting A LOT OF PEOPLE.
Make a good investment and there are strong annual yields to be enjoyed, potentially well in excess of the equivalent annuity pay out, plus you’re retaining a physical asset which may be going up in value.
Any equity can be put towards other buy-to-let properties, making your retirement even more comfortable. Furthermore, when you do die (hopefully you’ll be among the one in five to get a telegram from the King or Queen of the day), that asset will pass on in your will, potentially helping children and grandchildren making their way in life.
Or, if you are 100, maybe it will be of more use to the great grand kids!
In a best case scenario, the yields from buy-to-let will be better than the annuity would have been, while the asset remains yours and increases in value. With an annuity there is no best case scenario, though there is certainty.
Invest in property and you have to be aware that there are no certainties. Around a quarter of buy-to-let landlords with a single property are not making a profit. Could this be a disaster for your retirement plans? There is the potential that instead of making a return you lose money, if the property has periods without tenants, the mortgage and other bills still need paying.
Investing in property also requires research and management. In short, it requires effort. With an annuity, the returns might not be huge but they do arrive on time, stress free.
The potential rewards with property may be far higher, but you will need to stay across the maintenance of the property and much more, unless you pay someone to manage the property with the ensuing costs.
You will also need to ensure you are buying in the right area, which means knowing the area, potential returns, what type of tenants you are likely to find and much more. Research also means how the area might change, could the loss of one major employer decimate the local buy-to-let market and with it your investment?
Get these decisions right and that’s where there are strong returns to be made.
A Third Way?
We think we have something unique to offer. The House Crowd combines crowd funding and buy-to-let property investing. This means that investors can have the benefits of investing in property – the potential of strong returns and asset growth, but with this shared across multiple properties.
As an example, a £100,000 investment could be spread across 10 properties, with the £10,000 invested in each potentially earning a return based on the overall yield of that property.
Whereas going it alone means that problems on one property could severely effect your entire pension pot:spreading the investment of course dissipates this risk.
Going with The House Crowd also means investing in properties chosen by experts, properties picked by people who are experts in the buy-to-let field and have chosen properties with the potential for excellent returns.
We don’t want to give you the hard sell though! God, we hate the hard sell, we’re the type of people who can’t stand it when the sales assistant comes up to us. We’re just browsing, OK?
We’d love you to have a look round the site though, to see if crowd funded property investment might be a middle ground between the risks of going it alone (and the large capital required) and the modest returns of annuities.
We recommend drawing up a list of key questions.
- Can an annuity provide the annual funds you need? If it can, then it has to be worth considering as the money is guaranteed
- Are you willing to put the work in to make being a landlord or property investor work?
- How important is having assets to pass on in your will?
- If you’re considering property, do you want to go it alone, or spread the risk with crowd funded property investment?
And you will have your own questions too. We wish you all the best for a happy retirement, whenever that may be. If you need any information about the House Crowd, please get in touch.