How property investment could unlock the retirement lifestyle you desire

How will you be able to afford to retire?

Property investment is increasing in popularity. With figures showing that most people are hopelessly underfunded for retirement, and traditional pension options paying too little to make a difference, people realise that a smarter retirement investment is needed. For most, this means investing in property.

This article will help you assess how much you need in retirement, and discover why investing in property investment opportunities could be the pension plan you need.

How much do you need in retirement?

The Office of National Statistics (ONS) has released figures that show the average pensioner receives £10,250 a year from their private pensions and annuities, and a state pension of £6,000. Were you to retire tomorrow, would £16,250 annual income give you the lifestyle you want? And do you have enough in your pension pot to generate your income requirements?

To calculate how much you would need in retirement, you should reference your current budget. There will, of course, be items that can be discarded. These might include travel costs to and from work, and we’ll assume that you have paid off your mortgage. According to Which? Magazine, a couple with a comfortable lifestyle in retirement spend £26,000 each year. For a more luxurious retirement, the average spend is £39,000 per year.

To figure out how much you need, fill in the following income assessment. We’ve included the Which? magazine comfortable lifestyle numbers as an example:

Expenditure Comfortable Lifestyle Example (£) Your Estimate


Long Haul Holiday


European Travel/Holidays 4,144
Food 3,967
House Payments (Maintenance etc.) 2,969
Insurance 2,457
Transport 2,407
Utilities 2,040
Leisure 1,591
Household Goods 1,444
Charity/Gifts. Donations 1,382
Health 1,287
Clothes 1,092
Alcohol/Tobacco 933
Total Expenditure 25,713  


How big does your pension pot need to be?

Let’s say that you and your spouse retire with a state pension of £6,000 each – a total of £12,000 combined. Annuity rates are around 4.5% today, so to produce an extra £14,000, you would need a pension pot of £311,000. It is assuming you don’t take the 25% tax-free cash to, let’s say, pay off your mortgage.

Do you have a pension pot of £311,000?

If you haven’t started investing towards your retirement yet, and you are in your thirties, you will need to start saving now. True Potential research shows that a 35-year-old would have to save £52 per day to reach retirement in good shape financially (with a pension pot of £469,140). That’s £364 per week. £1,577 per month. £18,928 per year. Can you afford to save this much? No? Most people couldn’t.

The question, then, is how do you create a pension pot large enough to provide the lifestyle you want in retirement? There are several potential answers. However, I think you should rule out:

  • Winning the lottery
  • Receiving a huge inheritance
  • Robbing a bank

So, what is the best strategy to save money you simply can’t afford to save or don’t have?

Use other people’s money to build your pension pot

When you invest in property, you do so using other people’s money. Of course, you need to save a deposit (typically 30%), but you’ll use a buy-to-let mortgage to finance the balance.

How does it work?

Let’s say you make a property investment when you are aged 35 years. You pay a deposit of £50,000 and finance the remainder of the £200,000 purchase price with a buy-to-let mortgage at 4% interest. For the sake of argument, let’s say that the value of the property increases at an average rate of 6% per annum over the 30 years until you retire. (In fact, UK property prices have increased at an average rate of more than 8% per annum since the end of World War II).

With this rate of property price inflation, after 25 years your property would be worth £858,375.

If you decide to pay off the mortgage, you will receive £708,375, before capital gains tax, with a profit of £658,375.

If you’d have made that profit today, invested jointly, and were both higher rate taxpayers, you would have to pay capital gains tax at 28% on the gain minus your CGT allowance (£11,300 each in 2017/17). Including your original £50,000 investment capital, you would walk away with £507,758!

It gets better. If you buy a great property in one of the best places to invest in property UK, and the deal is structured correctly, your tenants will pay all costs, including the mortgage payments. You won’t have to put in a single penny extra. In fact, over a period, you’re likely to start making real passive income from your property investment as rental prices increase while your mortgage doesn’t.

Remortgaging to invest in buy-to-let

If you don’t have the deposit money saved, you might consider remortgaging your home to release equity. Let’s see how this compares with traditional pension investment:

  • True Potential estimates you’d need to save £1,577 per month from the age of 35 years to build a pension pot of around £469,000.
  • £50,000 or equity released from your home to fund a £200,000 property investment (as in this example) would cost approximately £208 per month, to build a property investment profit of more than £500,000.

As soon as your investment property moves into a positive cash flow position, not only will your tenant be paying your buy-to-let mortgage, but they’ll be paying for your remortgage, too! Your pension pot will be paid for by your tenants.

Invest in property for a more certain retirement lifestyle

If you invest in property as a pension, when you come to retire you have more options than simply selling and releasing the profits to buy a pension. Many people who have invested in property to fund retirement decide to keep their property and receive the rental income. As rental prices rise, you should find that your income is inflation-proofed, too.

In our example above, let’s say that in 25 years the property is valued at £858,375. You are still paying a mortgage interest rate of 5% on the outstanding balance of £150,000. Gross rental yield is 6%, and property management fees are 10% of gross rental income. Maintenance and other costs amount to 5% of the rental income. Here’s how your income would look:

Gross Rental £51,502
Mortgage Interest £7,500
Property Management £5,152
Maintenance and Other Costs £2,575
Net Income (before tax) £36,275


To achieve the same income from an annuity paying 4.5%, you would need a pension pot of £806,111.

Pension savings or property investment? The choice is yours

If you’d like to know more about how property investment could be your path to a better lifestyle in retirement, and how a remortgaging strategy could unlock the door to making money on other people’s money, contact one of our team today on +44 (0)207 923 6100.


James Cox

Himansu Joshi
June 11, 2017

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