Alternative Assets Are Needed for Retirement Planning
There has been a gradual but seismic shift in pensions over the last few decades. During this time, we have seen that:
- The value of the state pension continues to be eroded, by both the effect of inflation and the increases in the retirement age.
- Final salary schemes that once provided exceptional pension benefits are now extremely rare.
- Low-interest rates have almost destroyed the income potential of traditional pension vehicles such as annuities.
- Poor long-term returns and increased market volatility has made investment selection more difficult. It is estimated that 8 out of 10 investment funds underperform their benchmarks.
These dynamics have taken their toll at a time when people in the UK are living longer than they have ever done. They combine to add up to a horrifying statistic: the World Economic Forum believes that the average person in the UK will outlast their retirement fund by almost nine years. In other words, most people in the UK will live in poverty in their last years of life.
This has changed attitudes to retirement planning. People in their mid-forties and older are starting to consider retirement, and many understand they are likely to be seriously underfunded for the retirement lifestyle they desire. Consequently, those planning their retirement are investing in alternative assets to traditional pension funds.
According to a report by the Equity Release Council, property is now considered to be critical to a happy retirement by homeowners over the age of 45 years. It could mean more people look to buy-to-let property as a pension tool.
Property Wealth Has Ballooned in the UK
Property wealth has ballooned in the UK. More than £4 trillion is now held in property. Many homeowners in the forties and fifties will have bought their property 15 or 20 years ago. They’ll be sitting on a sizeable paper profit.
According to Nationwide, the UK’s average house price was £71,010 in the second quarter of 1999. Twenty years later, the UK’s average house price is £214,578. People retiring now can release this equity to top up their pension income. The Equity Release Council found that equity release is now making up 40 pence in every £1 of wealth of over-65s, and 47 pence in every £1 of over-75s.
Downsize or Release Equity
One decision that retirees who need to top up their income need to make is whether to downsize and bank the difference in price or stay put and release equity. The study found that more than two-thirds of homeowners consider property to be the most important contributor to their retirement lifestyle. The majority of these believe they can benefit from their property financially while still living in it.
This is likely to mean that current and future generations will be even more cash-strapped in retirement. They will have a smaller inheritance from their parents and grandparents. Homes are no longer seen as wealth to bequeath, but as a nest egg to support retirement needs and financial emergencies.
Good News for Property Investors
With less wealth flowing to younger generations, the ‘Bank of Mum and Dad’ could close in all but the most affluent of families. This is going to make it even more difficult to get on the property ladder and increase demand for rental properties.
That’s great news for investors in buy-to-let property. Building even a modest portfolio of properties should provide the security in retirement that current homeowners are seeking by releasing equity from their homes. Rental income should be future-proofed, by increasing rents in line with inflations. Buy-to-let investors with a portfolio should have some real wealth to leave to their children and grandchildren.
Structure Your Portfolio for No-Fuss Retirement Planning
With a well-structured property portfolio, an investor should reap the benefits that homeowners expect to – and then some. Homeowners will have paid for their wealth. Buy-to-let investors have tenants who pay for theirs.
In addition, buy-to-let investors can own property in any part of the UK. By having their investment properties managed for them, property investors safely invest in the best areas for investment and boost their capital gain and rental income.
Find out how you can invest in the UK’s most prolific areas where property potential is matched only by your ambition, with your property managed by one of the UK’s fastest-growing investment property management companies. Contact Ezytrac today at +44 0 1522 503 717.
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