Are you prepared for your retirement?

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Are you relying on your buy-to-lets to fill your pension pot?

The current UK retirement age is 66, but this age is set to rise to 67 if you’re born after April 1960. If you’re born after April 1977, it creeps up to 68. The current full state pension in the UK is £179.60 per week, but it could be higher if you delay taking out your state pension.

If you’re keen to retire with a large pension pot so you can enjoy your twilight years or if you’re hoping to retire early, you will probably need more than your workplace pension. Especially with costs-of-living rising, you will want to have the peace of mind that when you retire, you’ll be able to cover the costs of both heating and eating.

Many landlords have invested in buy-to-let properties in order to boost their future pension pots. But let’s take a look at what you should do to secure your future.

What is a workplace pension?

In the UK, an auto-enrollment workplace pension means you’re not the only one saving towards your future. If you earn over £6,240 per year, your employer must contribute on your behalf too.

From 6th April 2019, your employer has to pay a minimum of 3% to your 5%, bringing your total savings to 8%.

Don’t forget, you can also get some tax back on the money you put into your pension and the gains you make on it are mostly tax-free. However, while there is no cap to what you can save towards your pension, but there is a cap on that tax relief:

Earnings cap. Your tax relief only extends up to your annual earnings. If the amount you want to put into your pension pot is more than your annual earnings, you would have to pay tax on that extra amount
Annual cap. Since 2016, if you are a higher earner, with a combined income, pension contributions and employer pension contributions totalling over £150,000 a year, you will have to pay tax on anything above that
Lifetime cap. If you have saved over £1,073,100 in total, you’ll face taxes on everything you save above that

These are all quite high amounts, so it’s unlikely that you’ll face these caps. But it’s good to have in mind, if you are planning to invest more in your pension and don’t want to face any extra costs in tax, so you can plan accordingly.

When should I start to save towards my retirement?

The first question is – are you in debt? If you have credit cards or loans, you might want to focus on clearing those as soon as possible, especially as interest rates are climbing.

But the best answer is – as soon as possible! Many young people at the start of their careers don’t consider their pensions, but they should! As soon as you start a job that earns you more than £6,240 a year, get paying into that pension, as much as you can!

As a basic rule of thumb:

Take your current age
Halve it
This is the percentage of your pre-tax salary you need to put into your pension

As you can see, the younger you start, the smaller that percentage will be! Bear in mind that that percentage is total, it includes your employer’s contribution too, so it’s not all on you!

What are other ways to plan for retirement?

Property is a great way to fund your future as it’s a reliable investment that will hold its value and likely increase. Many landlords invest in property in order to plan for their future, or their family’s future.

Your property portfolio can be used for your retirement in two ways:

A lump sum. When you are ready to retire, you could sell up your properties and use the money you make from the sales to boost your pension pot
A steady income. Alternatively, you can continue to be a landlord after you retire, your properties providing a steady monthly income to boost your pension. This will mean that you will have some responsibilities: you will need to be available to your tenants if there are any issues, you’ll need to keep on top of changes in rules and regulations and you will need to find new tenants in the future

The latter option can feel like too much work at a time when that’s exactly what you want to give up! But it is possible to be a good landlord without working full time hours and still enjoy a reliable monthly top up to your regular pension:

Get covered. Make sure that you’re covered in case of rent arrears or any other emergencies, so you don’t have to dip into your savings or pension pot. While it’s not a legal requirement to have insurance, Home Emergency Insurance and Rent Guarantee Insurance give you necessary peace of mind
Stay on top of changes. Make sure you’re keeping on top of the latest landlord news so you don’t miss any important updates. This can be as simple as joining an online community or signing up to regular newsletter
Get regular reminders. Use a tool that reminds you when your EICR, EPC or Gas Safety certificate are near expiry, so you don’t have to keep on top of those legal requirements. Our document storage tool keeps everything in one place and reminds you when you need to update!
Keep your costs low. Look out for ways to cut your expenditure, by using a free platform (like Mashroom!) for tenant finding and rent collection

While there are other investment options, property is one of the most reliable you can invest in. People will always need homes and with some care and investment, you can make a good profit from sales and/or rental income.

Even if you feel like your retirement is a long way off, take the time to check in on your pension regularly and plan to build on it!

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