When to compromise for pension?

[Twoshoesnewshoes]

I started a thread about ‘boring’ houses but I think I had not clarified my own thinking….

Im in late 40’s. We’re considering moving to a fairly nice but boring house, which would release a lot of capital from our current home.
some we will give to DC, but it would leave plenty to get one or maybe two BTL properties on short mortgages.

they would be paid off by the time I am in late 50’s and give a retirement income equivalent to my current income- I’m not planning to fully retire but I do want freedom when I’m older and to be able to help out DCs.

but it would mean a compromise now- a boring house in a good location but nothing to make one’s heart sing.

am I too young to make that compromise now? Or is it good to be planning ahead at this age?

Would you be able to buy the BTL outright if you move now?

@LiterallyOnFire yes I appreciate that, I’ve lived in bog standard homes most of my adult life.
i guess I’m unsure as to when, at what age/life stage, does one prioritise pension over the here and now?

@EasterBunnny
no, I could pay about 50% deposit and the mortgage would be for about 7 years, taking me to 55.
i could also then invest a lump sum (£50k?) into stocks and shares.

You've just said you can't buy with a mortgage and make a profit and people who do BTL professionally can afford to continue. So why do you still think it's a good idea, as someone with no experience, to buy a BTL with a mortgage?

If you want pension income, get a pension.

@NoBinturongsHereMate i don’t think it’s possible to make a profit from BTL whilst still paying the mortgage on it.
once the mortgage is paid off it brings in a profit. In my calculations, much more so than investing the deposit money into pension.

I don’t need additional income now as I am working.

I'm not a great fan of BTL as a retirement income source, although appreciate it works for some.

If I were you, I would put spare money into ensuring firstly that our pensions are maxxed and then use S&S ISAs every year (so £50k for a couple next tax year). I would then use these to fund the gap between winding down work and DB / state pension kicking in and to top those up to the desired level of retirement income.

For me, that's a much lower risk plan and far easier to manage. I guess it depends on your attitude to risk.
I want to ensure I have a very healthy retirement income but don't feel the need to take risks to make me a multi millionaire.

I can’t imagine anything worse than being a landlord in my retirement.
I suppose if they are ‘executive’ type houses near a local hospital etc. that bring in high rents, enough to pay the mortgage quickly / put cash into a sinking fund AND pay rental agency fees then I would consider it but otherwise no.
Then there will be CGT to pay when they are sold. Who knows what other taxation for landlords will appear if Labour get in too.

You also seem to be forgetting the 20-40% tax relief you get when paying into a pension.

I’m not forgetting any tax relief, it’s just the way the sums add up.
i don’t want to be a multimillionaire 😂
I have a very small pension so I’m thinking of ways to boost that.
my question is more, when is the life stage/age to prioritise saving for retirement over current spending?

I guess what everyone is saying is that they think it is unlikely the numbers do add up in BTL's favour when you take tax into account i.e. tax relief on pension contributions and growth within pensions and ISAs Vs income tax and CGT on BTL.

In terms of timing / compromise, that's a very personal thing but most people consider it's best to start saving for retirement as early as possible and to increase as you get older and when your disposable income increases. It's very much your own decision re: spend today Vs level of income you want in retirement.

my question is more, when is the life stage/age to prioritise saving for retirement over current spending?

The earlier the better.

I hate to say it... but due to the gift of compound interest and tax breaks the time to start building your pension pot is as earthly as possible. Waiting makes no sense no matter how you do the maths.

General rule is to invest % half your age throughout your working career in order to down tools at retirement and continue your standard of living.

General rule is to invest % half your age throughout your working career in order to down tools at retirement and continue your standard of living.

I thought half the age you start the pension is the advice although obviously the more the better.

It is half the age you start the pension

Yikes! Okay so I need to prioritise then! Thank you that’s very helpful

Also am I missing something with the maths?
with tax free ISA, £75k invested for 15 years at 4.2% interest gives £140k?

Yes, your calculation is right.

But if you're investing for a 15 year term, most would go for a s&s ISA, not cash.

Plus you have to think of what 140k would buy you in 15 years time allowing for inflation.

Why aren’t you keen to pay more into your pension and get tax relief on your contributions?

@Chewbecca , thank you 🙏
I would have cash, from my house sale.
if I invest the £75k in a BTL which costs £240k, this would take 7 years to pay off the mortgage on the £135k rest.
after 7 years, at todays money, allowing £250 a month contingency, £200 management, £100 a month tax, I still have a net income of £2000 a month - obviously less some months if the boiler breaks or a gap in tenant.
the pension calculation in my previous post would give £2000k a month for 70 months, whereas the property is ongoing and my DCs inherit it minus CGT.
what am I missing?

Sorry, 9 years to pay off the mortgage.

According to the gov.uk calculator, if I paid the 140k saved after 15 years into an annuity it gives me £7560 a year!!

Well, the fact that you are putting another £135k, plus interest, in to the BTL for a start! You need to take into account investing those repayments too? That's a fairer like for like comparison.

(Also do £240k properties in your area really command rents of over £2.5k pm?)

I would ignore annuities, it's fairly unusual for people to buy an annuity with the pension pots these days, most people use drawdown, with 25% of it being tax free.

I am 57 and mainly live off 2 properties I rent out, as I left teaching in 2020. The thing is I hardly ever get the total amount of rent due to maintenance costs, particularly costs incurred at the end of a tenancy... its stressful tbh and I wouldn't recommend it.

Yes but the amount you pay into a pension won’t remain static, presumably you’ll increase it to keep up with inflation every year.

Annuity calculators give a (low) average, age and health when you buy them affects the rate, you can buy term annuities where you get your money back after 5/10 years etc.
You also don’t have to buy an annuity, you can use flexible drawdown.

Paying in £500 a month gross, after a lump sum of £20k , increasing by 2% a year x 15 years at 8% growth gives you £250k, almost £200k at 5%.

I’d have a talk with an IFA if I were you to go through all the implications of owning / passing on rental properties regarding potential IHT and CGT.
Unless buying a new(ish) build or recently renovated, there are going to be major expenses at some point, new windows / doors / roof even.

DH does a lot of work for a couple of landlords with multiple properties and all they do is complain!

You’re also not taking into account the tax relief available if you put the spare funds into a pension, instantly increasing the ££, before it even starts growing.