Naive to depend on rental income as pension(10 Posts)
First time starting a thread.Looking for advice., please be gentle. Given as much info as I think relevant as don't want to dripfeed.
My current plan for retirement is paying off the mortgage on our previous house which is now let to tenants ( kept our previous house on whilst we moved for a better location for schools) and living on the rental income,
It is on an interest only mortgage with 200K outstanding. We anticipate working another 25 years or so, which time, I am hoping to have paid off both mortgages.
We are not from the UK originally and had so far not thought about pensions or paying into one. Partly because of not being able to plan for more than 5 years ahead when we first started out. We have only in the last two years became more secure with jobs and feel we can plan ahead.
But recently had a financial adviser at work who stressed the neeed to have pensions. And I now feel that I have been quite naive about this. Would you people advise that this is a good plan? Or should I be paying into some form of pension?
My personal plan is to never retire as I don't think I will be able to afford to.
But to answer your question, no, I wouldn't depend on one solitary asset to fund my retirement. Very risky.
Thanks for the response. semaphorically.
Looks I not be able to retire as well. 😳
One egg in the basket - not good. You can get rent guarantee insurance and if you argue enough, it will pay out when the tenant doesn't - but you still get voids , have maintenance, tax, etc etc etc.
You also need have contingency for regulatory changes - m e e s, electrical regs, landlord licensing and whatever else is coming. Fine if the place rents for thousands, less so if it is £500.
Why interest only mortgage? Why aren't you using the rental income now towards the mortgage?
Do you have workplace pensions? Does your employer match pension payments you make? Pensions can be tax efficient. I earn a couple of thousand not higher rate tax. I have put every penny of salary that would be taxed at higher rate into the employers pension as a salary sacrifice.
It's only been in the last 2 years that we have had this as BTL. We started on interest-only mortgage as wanted to see if this was financially viable. In the coming years, hoping to pay off the capital with the rental income. Or will convert to repayment mortgage.
It currently rents out for just over a 1000 pounds.
Yes ,I have work place pension ( minimum that I could pay into as was advised that it wasn't wise to pay lots into pension by colleagues and people I knew ) but only since 3 years as was SAHM till then.
pension contributions from your earnings are still a good deal, because the employer will also out something in, and you gain the tax that would also have been deducted from that pay if it had been given to you. Soul has (currently) a particularly good approach. If you are in business on your own it is even better because there is NI on salary but not on pension contributions.
You will probably get a state pension of some kind, but eligibility and amount depends on the number of years you have been working (or caring responsibilities) and the rules change often enough that I don't know what they would be in your case.
You can apply for a State Pension Forecast which is useful information to have
I think everybody should get one.
Do it now.
With retirement landlording, I think there is a problem when you become too frail or confused or sick to look after the business yourself.
It's possible that the environment in the UK will become less favourable to private landlords in the next ten or twenty or thirty years.
£1000 pcm is a lot of money. I wouldn't be paying interest on the mortgage unless I was making more on the £1k than I would be by paying off the mortgage.
It might be good to pay the rent income into a pension.
Your employer (probably) has to offer you a pension through work. It's usually a good deal to take this up as the contributions are tax-free and if they permit salary sacrifice you can save NI contributions on the pension contributions as well. Your employer will (again probably) be obliged to put some contributions in to your pension as well as the ones you make, so essentially 'free' money for you.
You should definitely consider paying into an actual pension. It makes a lot of sense because it comes out of your gross income. For example, if you're on the 40% tax bracket, paying £1000 in means only £600 less in your pocket. In addition, employers often add to the contributions so the £1000 could turn into £1500 or even £2000 instead of £600 in your pocket/going towards the mortgage. You also need to factor in all the taxes charged on BTL income or selling the property. You're also better off putting money in a pension for inheritance purposes. I think if might be worth getting further advice from the IFA.
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