Plonkee has written a couple of brilliant articles this week comparing the pros and cons (and maths) of funding your retirement with a pension or buy-to-let properties.
The maths is pretty complicated but also intriguing; in her calculations, the buy-to-let option comes out on top, although she concludes that the risk is naturally greater, and the involvement one needs is probably also more than with a traditional pension.
Buy-to-let is definitely a “sexier” retirement vehicle, and I’m all for making pensions more interesting if it means that people who wouldn’t consider one are now more likely to, but I personally think they should only form a small part of your retirement planning, and that’s if you’ve got the time and inclination to invest in them. Whilst I’d like to think I’d be able to afford to add some buy-to-let properties to my retirement portfolio in the future, the reality is that I’ll probably have to stick to funds.
I’m also definitely in the “can’t afford to do buy to let even if I wanted to” category. I only just got enough together to put a deposit down on my own (extremely modest) house. Let alone trying to be the next big slum landlord.
Both you and Plonkee say that definately can’t afford to spur out into the property market. I think it may be hard for a while, but it’s the old story, get your foot on the ladder. I did this 6 years ago with a Northern Rock mortgage of 120% (guess I was sub-prime there then) to pay student debts. Since then property has lept in price, but this has been happening now for 40 years! Because of gearing and not selling houses I move from, I now have 4 houses and the deposit for two more … and my salary is still nothing much. With property, it’s long term thing. So the market may slow, but when it picks up, it usually jumps and it can be better to be in early. Ideally remortgage every two years approx. Take max money each year. Only make interest only payments (as tax deductable), and soo, as prices increase, you’ll have more money to invest. Leave as little equity in the properties that are rented out as possible.
I have worked in both the private and public sectors and can’t understand how Tony Hazell can spout such divisive rubbish. My private pension was non-contributory just like my civil service pension. The main difference was that the private company pension was a lot more generous. As an example after 40 years in the private company scheme I would have built up a pension of two thirds of my final salary whilst in the public sector the maximum I can accrue is half my final salary. Surely even a Finance Editor can work out which is higher.
The main problem is not with the public sector pension, which until recently was derided by most people in a private sector scheme, but in the attacks made on the private sector pension by that idiot Brown. Why aren’t the Private Sector Pension Trustees putting pressure on politicians to reinstate tax relief on dividends? That won’t repair all the Brown Blight but it will help.