Understand now, before you're older
Growing up did you ever ask something and receive the reply "you'll understand when you're older"? Looking back I'm not sure that I ever went away really satisfied with this sage advice; time has a different scale when you're little and anything further away than 'now' can seem too distant to wait for. Even in much of adult life the idea of retirement does not feature on the immediate horizon but this is one area where you really shouldn't wait till your older to understand. Retirement and pensions are interconnected in most peoples' thinking but while it's easy to count down the years to 'gold watch' day it is less easy for many to know exactly what income awaits their entry to the 'golden years'.
It is not a startling revelation that pensions have had a rough time in recent years.
Our UK government raided them savagely in 1997 wiping off tax relief on dividends (now that we're 12 years older we understand the impact, there's a £175 billion hole in the bottom of the money bag, conservatively estimated). Then they came back for more in the April 2009 budget and took away the tax relief on the pensions of those paying the higher, 40%, level of income tax.
The days of the 'final salary' pension are well past with younger employees obliged to take out 'money purchase' schemes. Ever had a consultation with an adviser about these schemes? I haven't met anyone who has come away with any certainty about their retirement prospects. One gets the feeling that the questions are turned back to you; "how much can you spare to pay into the scheme?", "what is your attitude to risk?" etc. 'Projections' are couched in so much 'disclaimer language' as to be meaningless.
There is uncertainty about the performance of many managed pension funds in the 'global economic crisis'. I found an article in The Observer from October 2005 which lists dire performance figures for many of the world's biggest pension fund managers...and that was in the GOOD TIMES!
Those waiting on a local government pension were rocked by the disclosures thrown up by the Icelandic banking crisis last year.
Then of course there's the very current uncertainty about exactly at what age you'll be able to start collecting your pension.
A better idea; take control
For the last couple of years SIPPs (self invested personal pensions) have had a growing profile because, simply put, they're a vehicle that you can drive yourself. For those prepared to do some research there is the possibility to place parts of their pension fund into diverse projects, long or short term, and have a much more 'eyes open' control of the fund's performance. Let's continue this theme of 'taking the wheel' and be positive and, rather than rail against institutions or the system, we'll explore a really good alternative that will allow you to prepare for retirement with confidence, regardless of how near or far away that seems. Crucially you will be the one in control, and you'll be able to keep track of the numbers and make plans that fit your situation.
Your house can be the cornerstone of your long term prosperity, the best business partner you could wish for. The benefits of owning your own home are multi-level. For too long however too few people have looked past the first few 'levels' i.e. makes more sense than renting, it's a good investment, gets you onto the ladder...all true and all good enough reasons in isolation. But these are just the visible part of the iceberg; it's bigger the deeper you go. We're about 18 months into 'the worst recession since....' and many homeowners are feeling a little shell-shocked. Time to be calm, take a few deep breaths. We shouldn't have believed those who said the economic cycle had been broken and implied (or promised?) that all these years of growth would perpetuate indefinitely. Equally, now we certainly must not believe all the pessimists and "told you so" merchants; everyone's a prophet (or an expert) in hindsight.
Your house is still standing I presume. Its roof, walls and windows all have a value as the land and garden most certainly do. Over and above this it is a home to you and your family; in an island where there are not enough homes. What does shortage create? Demand.
Unlike we humans, our homes do not have to decline with age. With some sensible management and a little maintenance buildings stay just as strong and become a lot more valuable and in doing so they open up all sorts of possibilities. Various forms of refinancing at the right times will enable you buy into other houses. Later, this process can be repeated with multiplied benefits; snowball!
I mentioned management: it's not hard to find efficient ways to use the income your houses will start to produce. Trusts, Gifts while you're still in good health (live for 7 years after giving and no tax touches that gift), put the homes into an offshore firm (not difficult or expensive). SIPP funds can also go into companies that manage property. Death and taxes may be inevitable but their terror is greatly exaggerated!
We can't control a lot of things in life but we can control much more than many of us realize. You can certainly take control of the business of your home and make it a vehicle for growth. In doing this you will have a retirement plan that gives you a level of certainty far greater than if it were left in the hands of others.
Click here to read more about how Giroma can make property work for you.