Reports emerged in the papers last week that the average 24-35 year says that they would need an annual income of £26,000 when they retire. That means that they need to save £780,000 (based on a retirement age of 65 and living to the ripe old age of 95). The Queen announced in May this year, that a flat rate pension of £140 per week would be paid to people on a state funded retirement. That payment alone would mean that today's 24-35 year olds will be facing retirement with just £6,700 a year in their pockets. An existence funded by that sum would be far from frivolous and it would be sensible to have a private pension to combine with the state pension and somewhat increase your standard of living. Visions of eating expired food and reusing teabags is surely enough to motivate?
The topic of pensions is inanely boring and for some reason a bit of a minefield of options with varying tax relief, interest rates, risk, salary contributions - the list goes on. But the purpose of this blog is to look at property investment as an alternative to a traditional pension. Property pensions are by no means a new idea but as with all pensions they can fall short of expectation. Anyone hoping to retire at the end of 2007 with a property pension might have winced at the 12 months of preceeding doom and gloom reported on house prices. We can learn from past events and be more prepared for when we retire.
The glory of property is that it is tangible, whereas traditional pensions tend to manifest themselves in a piece of paper. If it transpires that your pension is worth nothing, the only other use for that piece of paper would be to absorb your tears or to screw up into a ball and throw at someone to bear the brunt of your frustration. With a property, you have a few options and one that springs to mind is that you can live in it. Other than that, you could sell it and use the proceeds to fund your retirement or you could rent it out and use the income to support your pension. These options are great as long as any mortgage is as good as paid off. Even if the value of the property has gone down, aquiring tenants and waiting until house prices are on the upturn is likely to see you through the decline.
To depend soley on one pension plan is a fool's game. Whether you decide to invest in property for your pensions' purposes or not, do have other savings. An employer pension scheme, a private pension scheme, an ISA - whatever it is. It is important that you start saving for your pension as soon as you can. When you first start work it might be a bit more difficult, but as your salary increases you should set aside a third of any pay rises for your future. Think like a squirrel and put away whatever you can.
As a last resort, offspring can be leaned upon for financial support, your children may laugh but it is common practise in China and other far eatsern countries. Pensions are complex, risky business with lots of choices, pitfalls, pros and cons, endless outcomes. We hope we have shed a dim light on the subject and that we have not instilled a sense of money worries, our aim is to encourage preparedness for retirement.