Everything You Need to Know About Retirement Investment

See how you can effectively use property to build a long-term retirement investment plan.

What Is The Best Asset for Retirement Investment?

When you’re building a retirement investment plan, it’s important to consider the assets that can best deliver over the long term. You need to consider that you’re going to be holding on to this asset for potentially 20+ years so using an investment vehicle that can build value over time is extremely important.

This is what makes property very appealing for building a retirement investment plan – it has the potential to build rising rental returns over the long term while increasing in overall value.

Theoretically, a property can pay for itself by using the rental returns to pay the mortgage, which means it will eventually deliver pure profit. It is this – combined with the potential to sell at a much higher value – that makes the asset so viable as a retirement investment vehicle. If you invest early enough, by the time you hit retirement age you could have a very high-performing property portfolio.

Before making any investment, you need to explore the different strategies and tactics on how you can create a comfortable retirement or even early retirement through Buy-to-Let property investment.

Planning Your Retirement Investment

When planning your retirement investment, the most important consideration is time. Ideally, you want to start planning and investing as soon as possible, so that you can maximise the strength of your returns.

At the same time, you need to understand the ‘retirement number’ that you’re going to need. It’s one of the key questions that sits at the heart of any retirement plan and can dictate your actions going forward.

One of the most simple methods is ’75 – 85′, which believes that if you want to live comfortably during retirement, you need to have between 75% and 85% of your salary per year.

There are many different ways of working out your retirement number, so find one that works for you and adopt that into your long-term planning.

Funding Your Retirement Investment

A key part of planning your retirement investment is how you plan on funding it. If you require a mortgage, you’ll need a specific buy-to-let product. However, this can be tricky depending on the age that you’re investing.

While this will be a less significant problem if you’re investing early, some retirees may need to shop around for buy-to-let mortgage products aimed more at older borrowers.

That said, retired property investors may look to use the 25% tax-free lump sum that can be released from their pension to part or fully fund their property investment. If this is an avenue you’re considering, it’s very important to seek professional advice on how best to structure the investment in the most tax-efficient way.

In any case, ensuring that you’re budgeting correctly is vital. This is where using a budget calculator can be useful in building a long-term strategy and give you ideas of what you need to save to achieve.

What Tax Considerations Should I Be Aware Of?

There are several tax-related considerations when investing in buy-to-let property for retirement investment.

The main consideration is Stamp Duty Land Tax on second homes. On properties worth between £40,000 and £250,000, you will have to pay 3% Stamp Duty Land Tax, which rises to 8% for properties valued between £250,000 and £950,000. Please note that these rates are only applicable to second homes in England and Northern Ireland: for Welsh and Scottish retirement investment properties, the rates will be higher.

Depending on other income streams an investor may have, any profits made on renting out property will be taxed at the appropriate rate. If the property is sold, the profit would be subject to capital gains tax.

What is retirement property in the UK? Plus Icon

Retirement property can mean many things – it can be a property bought for the sole purpose of living in it throughout retirement, or in terms of investment, it can be a buy-to-let property that is used to fund a retirement.

UK property can be used to achieve a plethora of financial goals, and is commonly used to either fund an investor’s retirement, or to simply supplement a pension. This can be achieved by adding the monthly profits from the rental income to a ‘pot’ or by holding the property and benefiting from capital gains on the sale of the property. However, a combination of the two can often provide the biggest returns.

Can I invest my pension in property? Plus Icon

More often than not, you can use the money from your private pension to purchase a property. Here, you’ll need to consider several different things, including the deposit and a mortgage (if you need one).

If you’re going to need a buy-to-let mortgage for part of your purchase, it’s crucial to remember that the majority of lenders have an upper age limit on their Buy-to-Let mortgages of around 75.

Is property better than a pension? Plus Icon

Pension or property, it’s the age-old debate that will continue for many years to come. However, this decision largely depends on your own financial position and what you want your retirement to look like.

With the average length of retirement standing at almost 20 years, you’ll be needing at least £594,000 in total to maintain a luxurious lifestyle, or £204,000 for a basic living.

However, reports have found that the average pension pot stands at just £62,000, meaning property could be the better option for achieving the retirement you deserve.

Buy-to-let property offers two different income streams – capital appreciation and rental income. You can choose to either purchase and hold a property to benefit from capital growth and sell for a lump sum for your retirement pot, or you can rent the property out throughout your retirement for a consistent, monthly income.

Are You Ready To Invest For Your Retirement?

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