Retirement investing today for lifestyle income tomorrow

Property investment is the new pension

If you’re like many modern parents, you’ll have started to worry about retirement investing already. Just how are you going to produce the income you need when you no longer work? Will you never be able to give up work and do all the things you really want to do? Is there any way to become financially independent?

In this article, I’ll look at a typical mum and dad today who are asking themselves these kinds of questions. You’ll also learn why, when planning your retirement investing today, property investment should be top of your list.

Meet Rick and Jane, who are worried about their retirement

Rick and Jane are a typical couple. They have a nice suburban home with a mortgage and two kids. They’re fairly good at saving, but both have to work to make ends meet and stay ahead of the game.

Both in their forties, Rick earns £35,000 a year and Jane works 20 hours every week in the local corner shop. Without her wages, the kids would have to forego a few ‘luxuries’ like the annual family summer holiday.

Where they are on the road to retirement

Like most people, Rick and Jane have done the usual things when it comes to retirement investing. During their twenties as they were starting out – a new mortgage, new family, and at the beginning of their careers – pension planning couldn’t have been further from their thoughts.

As they moved into their late twenties and early thirties, they became more aware of the need for retirement investing. Today, they’ve got a couple of small personal pension plans. Rick currently puts around £200 per month into his, but he’s been disappointed by the results. On a recent visit to his financial advisor, Rick discovered that:

  • in the last fifteen years of investing in his pension fund, he has spent a total of £24,000;
  • pension tax relief has added another £4,800 to his fund;
  • his total pension fund value is now £36,000.

His advisor recommended that he doubled the investment into his retirement investment portfolio. Rick’s going to find that difficult. Super difficult.

He should have bought another house

When Rick and Jane bought their home, they paid around £40,000 for it. That was 20 years ago. It’s now worth just over £200,000. At first, the mortgage payments were tough – interest rates back then were more than 7%.

They’ve always had an interest only mortgage. They’ve had some work done on their home over the years – new doors and windows, and a conservatory, for example – and their mortgage is now £45,000. Their mortgage payments are around £140 per month.

“You know what, Jane,” Rick said when they were working on their budget to try and find the extra £200 per month for Rick’s retirement planning, “we should have bought more property instead of investing in this pension.”

Retirement investing today for lifestyle tomorrow

Rick and Jane eventually found the extra £200 per month. But they were no longer convinced they should plough any more money into stocks and shares for their retirement. Based on their experience over the last 15 years, they wouldn’t have much capital growth. And the truth about rental income vs. stock market dividends is that rental income has outstripped dividends every year for the last 20 years.

Over the next couple of weeks, Rick and Jane did their own research. Rick discovered 7 reasons why investing in property beats all other investments. Jane found a property management company that would make the day-to-day life as a landlord a breeze.

Rick also discovered that Jane had been better at saving than him. She might only have been working part-time, and her income had paid for every family holiday for the last 10 years or more, but somehow she had saved £20,000.

They figured that if they released another £30,000 from the equity in their home, then a £50,000 deposit would be enough to secure a buy-to-let mortgage on a £180,000 property. The mortgage interest payment would be £498 per month. That was almost affordable as they stood, but when they factored in rental income of £820 per month, the investment would more than pay for itself.

Rick and Jane are now using property for their retirement investing today

Here’s what Rick and Jane decided to do:

  • Rick froze his pension and stopped putting in the £200 per month.
  • They decided to keep Jane’s £20,000 savings in an ISA for tax efficiency. Apart from anything else, it’s a great emergency fund.
  • The couple released £50,000 equity on their home. This increased their mortgage payments by £155 per month.
  • They bought their first investment property for £180,000 with a buy-to-let mortgage of £130,000.
  • After mortgage payments, property management fees, and other costs, their gross rental income of £820 per month produces net income of £120.

This process of looking at how best to do retirement investing today forced Rick and Jane to review their budget. They had found an extra £200 they didn’t realise they had.

They’ve bought an investment property that promises to pay a good income when they retire, and, although the mortgage on their home is now more expensive, they’ve found themselves around a net £150 better off each month.

Be like Rick and Jane and look forward to your retirement

Shouldn’t you think about retirement investing today? Do you want a great lifestyle in retirement, to do things you always promised yourself you would do?

Your pension planning doesn’t have to be complex. It doesn’t require complicated investment structures. Rick and Jane will now probably retire on better income than if Rick had doubled his monthly pension savings. They may even be able to take early retirement.

All they did was sit down, consider the options, and come to the logical conclusion for income investing: property investment should be at the top of your list.

Perhaps Rick and Jane were lucky. Jane had saved well, and they had great equity in their home that they could release to use as a deposit on their first buy-to-let investment.

If you don’t have the deposit, you need to invest today, read our article on how to save an investment deposit quickly.  You’ll find easy ways on how to save up to £25,000 in a single year.

For information on how you can invest in investment grade residential property at below market value, contact the team on +44 207 923 6100 today . We’re here to help you be more like Rick and Jane!

Best regards,

Neelam Springer

Brett Alegre-wood
October 9, 2018

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