MegaSack DRAW - This year's winner is user - rgwb
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Which one of these scenarios appeals the most?
Cash purchase of joint annuity 50%, index linked £90000 buys £5000 a year for life.
Property purchase holiday let ready to go £90000, would generate a net income of £3.5 - £4k a year as long as your fit enough to service the property.
Early retirement aged 56 in good health, annuity doesn't start paying until 60.
They aren't making any more land*.
*Well they are, but in places like China & Holland.
Cash purchase of joint annuity 50%, index linked £90000 buys £5000 a year for life.
I recognise some of these words.
Cash purchase of joint annuity 50%, index linked £90000 buys £5000 a year for life.
That's a very good rate as in too good to be true....
£100k buys [url= http://www.sharingpensions.co.uk/annuity_rates.htm#text5 ]60yrs old + 3% escalation + 50% Joint Life is £2,835 pa[/url]
Unless you had been diagnosed with terminal cancer etc, in which case you could get an enhanced rate...
Ice cream. Lots of ice cream.
Footflaps, it is true, trust me.
I won't go into details, but this is an actual scenario.
Bitcoin or Sierra Cosworth?
Which one of these scenarios appeals the most?
Property, then you still have the capital.
Why can't you invest the £90k though? £90k at a modest 3% growth would last you nearly 30 years drawing £5k a year.
Of your two options I'd say property. At least it'll give you something to do when you get bored of being retired (only half joking).
But I'd actually go with Gary M, the third option of investing.
I would automatically say property but that is a bit of a below average return on the property and a good return on the annuity so it makes it trickier. As mentioned, with the property you still own it, so after 20 years you could sell and live on the cash or pass it on to a family member. Property would get my vote, although maybe not that one (unless it included some decent use for yourself in a place you want to go)
but that is a bit of a below average return on the property
Yes I thought that to, but assumed the op must have deducted paying tax on the earnings?
Property purchase holiday let ready to go £90000, [s]would[/s] [b]MIGHT[/b] generate a net income of £3.5 - £4k a year as long as your fit enough to service the property.
Annuity income is guaranteed. A property is far from that. About the only thing you can be 100% certain about with generating rental income from property is that it will be highly variable and at times unreliable. It will also end up costing you significantly at some point.
If in your retirement you intend to continue to work on the side, say as a consultant, and therefore not wholly dependent on the rental income, then perhaps that would be the more appealing investment. Otherwise it would have to be the annuity.
A property is far from that
Tax situation could change eg punitive taxes on 2nd home owners etc.
I'd take the annuity as the offered rate is very generous.
Most investors under estimate the costs of running property. Every 5-7 years it will need a new kitchen, constant replenishment of the inventory, bathroom, carpets, major / external stuff like a roof, windows or boiler, re-pointing. Have you allowed for insurance and gas safe checks? Some of that can be resolved by UPVC, laminate flooring etc but generally my point is correct. My sister was well fed up with her holiday cottage after 3-4 years and that was despite being pleasantly surprised at occupancy.
Annuities grate a bit after all the horror stories so I would go with a bit of private investment starting by topping up your pension to get the tax relief. (but not if this £90k can out of a pension). A nice balanced fund should do you 5-6% pa.
Annuities grate a bit after all the horror stories
Except that the offered rate is 2x the market rate i.e. very generous.
A nice balanced fund should do you 5-6% pa.
4% is the max longterm you can draw down and sustain. You still need to achieve 5% before fees to get 4% net, which is a big ask long term.
Agree re house costs, one bad tenant and an eviction / redecorate and you've lost a year's income.
Is the money currently in a pension? If so, while the whole fund can be used for an annuity, taking it all as cash will probably involve paying tax (3/4 of it will be taxed as income) so you might get less than £70,000 net.
Conversely, if it’s not currently in a registered pension, perhaps the annuity figure includes some assumed tax relief - which might explain the apparently generous rate. But do you have scope for that much 'input'?
Yes it is cash in a bank account and the figure of £5k would include the tax relief on the £90k.
Baring in mind that Jeremy Corbyn could become Prime Minister i think that the annuity is the safe bullet proof option.
Thanks for all your input.
.Most investors under estimate the costs of running property. Every 5-7 years it will need a new kitchen, constant replenishment of the inventory, bathroom, carpets, major / external stuff like a roof, windows or boiler, re-pointing
For the majority of properties that just isn't the case. I've had one property for 21 years and apart from replacing the worktops the original kitchen is still fine, replaced the appliances once in that time. I've replaced the carpets and redecorated a couple of times but it's a one bedroom flat so hardly any cost. I usually tidy up any scuffs on the walls between tenants.
On another property I've had for 15 years I replaced the fridge freezer. That flat needed redecorated once and a tidy up before I sold it last month.
major / external stuff like a roof, windows or boiler, re-pointing.
How often do you think you need to replace windows, roof boiler and repoint a property? And constant replacement of bathroom - really?
I guess it depends in the sort of tenants you're letting to and how good your agent is.