# Sell Investment property to buy annuity or keep and live off rent



## Alexmartin (18 Mar 2014)

I have a friend who has an investment property worth €100k (slightly more, but lets choose round figures.)

He also has €200k in his private pension fund.

He is 58 and wants to retire at 60.

Is he better off selling the property and buying €300k worth of an annuity or would he be better off keeping it and getting rent of €850 pm that he is getting now.

Or alternatively if he retires at 65 does that change anything if those amounts remain the same?

What kind of annuity would you get at 60 for €100k?


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## Brendan Burgess (18 Mar 2014)

I don't think that any life company does non-pension annuities anymore. 

In any event they are not tax efficient, so he should not sell and buy an annuity.

Should he sell and contribute to a pension fund?  That would depend on whether he is using up his pension contribution allowances at present. 

Brendan


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## Bronte (19 Mar 2014)

So he's getting 10,200 income from the rental, less costs. There is no way 100K will buy income of even close to 10K unless your friend has some kind of medical condition that means he will not live long. 

Keep the rental. If at some stage he is tired of being a landlord, he could sell the apartment and use the capital to live off. It would give him 10K per annum say, for 10 years. When you're say 70, it gets you to 80 you do the maths etc.


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## Joe_90 (19 Mar 2014)

Have to agree I would have though someone around 65/66 would get 3% on an annuity so leave it as is and get someone to manage it for him would be the way to go.


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## Steven Barrett (19 Mar 2014)

I agree with the others. 

As Brendan said, you can't get a purchased life annuity in Ireland any more. 

Your mate probably took a bath on the RIP and will sell it at a massive loss. Between the pension and rent, he'll pay little tax. 

Annuities are final, once you buy one, that's it, there's no going back. At 60 years of age and annuities rates as bad as they are, he won't get much. Hang onto the property and he has the choice to sell later. 


Steven
www.bluewaterfp.ie


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## ronaldo (22 Mar 2014)

As stated on other threads, those with loses on investment properties considering selling them could consider buying non-dividend paying shares with the proceeds. They have significant capital gains losses to use up and shouldn't need to pay tax for a very long time.

Berkshire Hathaway is one I see mentioned a lot which, in itself, is very diversified. 

We obviously cannot discuss where we think the price of any individual share is going but I'd be surprised if investing €100k in a basket of such shares and withdrawing, for example, €5k annually didn't result in the total investment allowing capital withdrawals for 30+ years (the shares will go up and down in the meantime but the end result should be pretty good).

This would be too risky to do with a persons entire pension fund but the OP already has a sufficient personal pension to fund retirement so a more risky approach may be considered with the remainder - and I'd consider this approach no more risky than owning a single investment property - probably less risky in my opinion.


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## Jim2007 (22 Mar 2014)

Bronte said:


> So he's getting 10,200 income from the rental, less costs. There is no way 100K will buy income of even close to 10K unless your friend has some kind of medical condition that means he will not live long.



Since when did an investment property return 10% pa?  The discussions on here were talking more like 1% - 3%.....


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## Jim2007 (22 Mar 2014)

Alexmartin said:


> I have a friend who has an investment property worth €100k (slightly more, but lets choose round figures.)
> 
> He also has €200k in his private pension fund.
> 
> ...



I would thing the first question would be how much of a pension would he need to retire on?  How much of that will come from his state pension and how much from the private pension fund and what is the shortfall if any that needs to be generated from the remaining 100K?

Once you have got some 'back of a napkin' figures on that you can start to figure out if he can afford to retire at 60 or has to work until 65 and also how much he needs to accumulate in the next 5 years, if there is going to be a shortfall.

As an example, here is Switzerland the usual 'back of a napkin' calculation is: (65% - 70% of annual salary - annual state pension) divided by about 3.5.% - 4.5%  of course it is not very accurate, but it give you a good indication of how you are doing and if there are any major holes you need plug.


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## dub_nerd (23 Mar 2014)

Jim2007 said:


> As an example, here is Switzerland the usual 'back of a napkin' calculation is: (65% - 70% of annual salary - annual state pension) divided by about 3.5.% - 4.5% of course it is not very accurate, but it give you a good indication of how you are doing and if there are any major holes you need plug.


 
Does that assume you were spending all of your salary while you were earning it? When I was working I was saving 60% of my after-tax salary. At a pinch I could survive on 20% of my gross salary, even without a state pension (for which I won't qualify for another 20 years anyway). If I'd waited until I could generate 65-70% of annual salary I'd probably be decades away from retirement. I presume it depends on aspirations.


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## Jim2007 (23 Mar 2014)

dub_nerd said:


> Does that assume you were spending all of your salary while you were earning it? When I was working I was saving 60% of my after-tax salary. At a pinch I could survive on 20% of my gross salary, even without a state pension (for which I won't qualify for another 20 years anyway). If I'd waited until I could generate 65-70% of annual salary I'd probably be decades away from retirement. I presume it depends on aspirations.



No it is more or less mandated by law.

The thing is that there is no way one can live on a state pension over here.  A state pension would cover a couple's living expenses for maybe 3 or 4 months at the most.  So all employers are required to have a company pension and employees must join from the age of 25 to 65.  The contribution rates start at about 5% or 6%  up to about 17% when you reach 50 years of age.  This must be 100% matched by the employer, so at 25 you are putting about 10% of your income into the pension fund and by 50 it has hit about 35%.  Most employers actually contribute more than 100%, usually around 120%.

The other think is that pension funds are required to pay a minimum return on capital each year after management fees. If for some reason (like the recession) this rate of return is not achieved, then the fund manager must kick in the difference and will draw down no fees in that year.

On retirement the fund will be converted to an annuity, the income being paid monthly.  Both the annual return rate on the fund and the rate on the annuity are set by the government not the pension fund managers.  

In addition to this people are encouraged via tax breaks to save up to about 6K pa in to a high interest account or investment fund (known as the 3rd Pillar).

So at retirement your average professional would have a state pension of about 22K, an employer's pension of about 40K plus additional savings of say 150K.  And this of course does not take into account their normal investment portfolio (which pretty much every Swiss has).


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## Bronte (24 Mar 2014)

Jim2007 said:


> Since when did an investment property return 10% pa? The discussions on here were talking more like 1% - 3%.....


 
You mean on the discussions about whether it made sense to buy property?

The OP has stated that the return on the 100K property is about 10%. Naturally it will be less than this, with costs and charges and taxes, but it won't be as low as even 3%. I do not believe that any annuity will pay him higher than the rental property. Plus he doesn't 'lose' the capital value by buying an annuity.

He should also factor in something important, he may currently be paying currently around 50% in taxes on rental, but when he retires his income will come down, and he could come down to the lower rates in income tax, in addition as far as I know, the tax exempt brackets are higher depending on your age etc.


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## vandriver (24 Mar 2014)

Does jim2007 mean that the return implies that the property is worth a lot more than 100k,and this might change the maths?


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## Alexmartin (25 Mar 2014)

Thanks for the info.
It does look like investing in property is once again an option for retirement.  Whod have thunk it.


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