Could These be the Best Investments for Retirement in the UK?

As a general rule of thumb, you should save as much money as you can for your retirement. The UK government notes that, “For many people, the State Pension is only part of their retirement income.”

If you want your retirement to include basic living costs, a 2 week holiday each year, 4 weeks in the sun each winter, a car with regular upgrades, a health club membership, a show once a month and weekly dinner or drinks with friends, you will need to build a pension pot of £29,587.50 a year.*

How much money will I get from the new State Pension?

On average, the full new state pension will supply you with just £7,658 a year, based on a weekly amount of £159.55 x 4 weeks x 12 months*. Assuming a retirement of 20 years, to have £29,587.50 a year, you would need to independently save £438,590, on account of the £21,929 annual shortfall over 20 years*.

However, as we’ll come to understand when looking at traditional wisdom, you shouldn’t place too much leverage on an estimated time frame. Life expectancy is on the rise, and even if it wasn’t, it’s likely you’ll want to ensure you were fully covered for a long and healthy life.

*Please note that the calculations included in this article have not factored in inflation. The new State Pension “will rise by whichever is the highest figure out of inflation, earnings growth and 2.5%” each year. You may also have to pay tax on your pension.

Oversimplification can be harmful

To assess the best investments for retirement in the UK, it would be too simplistic to suggest a single asset class to be the way forward.

Whilst it’s important to understand the way in which each asset class can shape your financial plan, it may be more important to recognise the value of creating a balanced portfolio. It may be unwise to settle for a single asset class.

Is diversification crucial when investing for retirement?

In diversifying your investment portfolio, you could be increasing your financial endurance. Arguably, a retirement plan’s stamina is upheld by two things. The first of which is your commitment to it. The second of which is the way its weight is spread out.

The extent of this can be highlighted by J.P Morgan’s research, which revealed that “The maximum loss for investors with mixed portfolios over any five-year period since 1950 was 1pc a year.” In comparison, “Anyone invested entirely in shares would have seen a maximum annual loss of 7pc over five years.”

It’s impossible to predict the future. The performance of your chosen investment could be poor. Likewise, the way in which your chosen asset class reacts to market conditions could be unfavourable.

When assessing the best investments for retirement in the UK, the clue is in the plural term “investments.” Don’t put all of your eggs into one basket.

By balancing your capital in this way, potential losses in one part of the portfolio can be compensated by potential gains in another.

If you combine the potential security of a longer time horizon, and investments that do not move in lock-step together, you could create a notably rewarding pension pot.

Though strategy aside, what are some of the investments available to you?

Stocks and bonds: is traditional wisdom wrong?

In terms of investing for retirement, traditional wisdom often suggests incorporating a mixture of stocks and bonds to be a suitable plan. Though traditional wisdom ignores one important fact: investing tends to be a personal style, not a collective trend.

Whilst creating a well-balanced, diversified portfolio may require a mixture of asset classes, not everybody is comfortable with investing in the stock market. Some dislike the risk; some find it too overwhelming. Others simply aren’t experts. Traditional wisdom assumes a one-size-fits all policy.

It also seems that “many investors struggle to understand bonds.” And whilst bonds may offer lower levels of risk, fixed returns may suffer under inflation - unless you choose index-linked bonds.

On this note, investing for retirement may be the longest financial plan you commit to. Is there a way to avoid inflation?

Don’t run from inflation, take advantage of it

Over time, the purchasing power of cash is eroded by inflation. If you chose to park your pension pot in a cash-based account, you could be prioritising security and flexibility over the potential to maximise growth.

But there are ways in which you can actually take advantage of inflation. Real assets, for example, rise in value in pace with inflation. Property experiences this in two ways; rising rental prices and rising house prices.

Our research shows that some of the most popular articles on investing for retirement make little mention of subsidising your pension with residential rental income.

Securing consistent rental income could provide a neat solution to the time-frame argument. You do not know how long your retirement will last, but instead of hoping a single lump sum will last, rental income could give you a stream of top ups.

Including property in your retirement plan alongside other investments could potentially:

• Diversify your portfolio further
• Allow you to benefit from inflation
• Secure a steady stream of monthly rental income

The problem with property

Understandably, property may be viewed as too exclusive an asset class to quickly add to your retirement portfolio. Traditionally, it’s an active investment - one that involves management, maintenance and expertise.

And unless you’re sitting on a lump of cash, you might find yourself locked out of the market. For reasons such as unaffordability and hassle, retirement portfolios are often cut short of property’s potential.

A new age of investing

However, it seems that investing as we know it has been turned upside down by the world of FinTech. From robo-investing in stocks and shares to property crowdfunding, FinTech is creating an investment space designed for the investor.

Property crowdfunding, for example, is a way to invest in property without ever having to buy or manage a house. Essentially, the price of a property is distributed amongst a crowd of people, as is any monthly rental income and any potential profits from the eventual sale of the property.

The potential for hassle-free, monthly rental income

When investing for retirement, property crowdfunding with Property Moose allows you to:

• Easily diversify

We source different types of properties in different areas of the UK, allowing you to design your own portfolio with a few simple clicks. Our minimum investment is just £10.

• Invest online from the comfort of your own home

Our custom-made technology is designed to streamline your investment process. You can invest directly using a debit card or credit card and view your personalised property map.

• Enjoy hassle-free monthly income from tenanted properties

Any rental income you earn from your investments will be paid to you on a monthly basis, deposited to your secure online e-wallet. You can choose to withdraw this or reinvest it - the choice is yours. As for the hassle, we take care of all the hard work - from management to tenancy sourcing.

To learn more about how property crowdfunding could simplify your retirement, click here.

Written by Jenna Kamal

Disclaimer and Legals

Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.

Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).