As we grow older, we begin to think about life after work, and being to imagine how retirement may be for us. One of the biggest considerations for retirement is money and how you are able to fund your retirement.
Many Brits believe that property is the best way to generate money and to begin to build a retirement fund, but is this truly the most effective route to take?
As revealed by the ONS wealth and assets survey, the most popular way to make money for a retirement fund in the UK is property and the second most popular method is pension schemes. As the two most popular methods in the UK, it is important to see which one actually is the best method, to help the UK public to make the most of their retirement.
Property Vs Pensions
Named as the most popular method, property is almost always the most valuable asset that an individual can own, and therefore the results aren’t particularly a big surprise. The earlier homeowners can begin to prepare for their future the better, and as part of this, the earlier a mortgage can be paid off the better as they will own their property outright for longer.
This would allow homeowners more time to decide upon what they want to do in the future, such as downsizing and acquiring capital growth from their current property. This becomes more relevant as property prices can also go down, despite the UK experiencing prolonged increases to property prices. Whilst it is likely for your property value to continue to rise and therefore your potential retirement fund to grow, pensions can only grow as big as you yourself can make it.
A pension depends on you putting money into it, and so if you put low monthly amounts into it, you aren’t likely to have a very big fund come retirement time, and this is where property becomes so valuable to those looking to retire.
Utilizing both property and pension schemes
Although property can be considered as the most valuable asset to your retirement fund, based on its value and the current state of property price growth, it could be a good idea to utilize a combination of property and pensions schemes for your retirement. Pensions are currently being analysed, and with an ageing population, it is not known how long pensions in the current format will continue for. Therefore, the two would be a fantastic combination.
With property, rental income can be a great way of generating extra money to contribute towards a retirement fund, as well as holding capital that you have invested. However, although property is a stronger option, it is not advised that you invest everything that you have for your retirement into one property, and likewise a pension scheme. You could spread your funds across different properties, or look to find a strong balance between both property and a pension.
Mark Burns is the managing director of property investment firm, Hopwood House.