Is your home your pension and what next?

There have been recent instances where clients comment that their property is their pension and therefore they do not see the need to start a pension or keep contributing to an existing scheme.

On the surface, property values broadly speaking, follow a general upward trend, so the logical conclusion is that there is either an equity waiting to be released or substantial capital gain to be realised.

Sounds good, doesn’t it? The ideal investment then – in simplistic terms, you buy an asset for x-amount, wait a few years or decades and hey presto – huge gain in the form of a lump sum to be had.Well not so fast, a slump in the housing market or a downward trend in property prices, can be a real thing and if it does happen that could mean a slide into negative equity.

What about ‘part time’ landlords with a couple or more properties? Surely, the rental income pays for the upkeep of the property, covers the mortgage, and maybe even generates a healthy income stream. So why is Buy-to-Let not the best retirement income strategy? Void periods, less than ideal tenants and numerous tax changes in recent years, have meant that this type of asset should not be relied upon to provide secure income. The illiquid nature of bricks and mortar means that it could take a long time to sell, or worse, not sell or even worse,sell at a loss.

What if you could use property as an investment for retirement, without all the hassle and headache of physically owning the property or properties? Options for indirect property investments come in many guises, such as Real Estate Investment Trusts, Property Unit Trusts, Property Investment Trusts among many others, this could be a means of generating income or capital growth depending on your objectives, within a diversified portfolio.Your Independent Financial Adviser will be able to assess the suitability of any such investments with regard to your risk profile and capacity for loss.

For comparison, to reflect the level of risk, the yields tend to be higher than bonds or gilts, but remember investment values can go down as well as up.

So as we can see from the above strategies, whilst having their place in the context of a solid financial plan, the scope for providing retirement income is somewhat limited. With many of us living longer than before it is of paramount importance that we seek income that is sustainable for potentially a very long time. This is particularly the case if property is your preferred choice, it goes without saying that it’s imperative that you seek independent financial advice to make sure that any retirement strategy is the correct one for you and your circumstances.

To sum up, property whether it’s in a physical form, or as an investment counterpart,could present an option for your retirement income strategy, however, best not to try DIY in either sense of the word!

If you would like to discuss any of the above please contact us, we will always help.

Silvia Johnson BSc(Hons) DipPFS EFA CertCII (MP) is a Director & Independent Financial Adviser at Royale Thames Wealth Ltd.

020 8720 7249 / 07908 109 741

Royale Thames Wealth Ltd is an Appointed Representative of New Leaf Distribution Ltd which is authorised and regulated by Financial Conduct Authority number 460421. The value of your investment may go up as well as down and the value is not guaranteed. Past performance is not a guarantee of future performance. Wills and Estate Planning are not regulated by the FCA.

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