Investing in property for retirement is the best strategy
Your retirement could last longer than three decades, and during this time your bank balance doesn’t need to barely survive, it needs to thrive! Life expectancy is increasing worldwide, so you must ask yourself: How can I generate enough income for an independent, comfortable retirement that lasts almost as long as my career? Will traditional retirement plans and annuities provide for a sustainable future? Property investment in buy-to-let properties as a retirement financial strategy plan offers a secure, lucrative alternative. Specifically, buy-to-let properties offer retiree investors a guaranteed plan to create wealth as they age. It also safeguards your financial day-to-day funds with a passive income through monthly rentals from your property. Retiree property investment is a game-changer compared to traditional retirement plans and we’ll find out why as we explore this idea more.
Traditional retirement plans compared to investing in property
Traditional retirement plans – pension, annuity, and preservation funds – are believed to have served people well over the years. These traditional retirement plans offer savings, tax perks, and protection from creditors.
However, specific limitations make them less helpful for financial security into retirement than investing in a property portfolio.
By contrast, property investment offers retirees a physical asset that gives them a secure monthly rental income that will appreciate, rather than get depleted, over time, often unaffected by inflation.
The Two-Pot System and how it affects retirees
There is now a retirement practice in place, known as the “two-pot retirement system” in South Africa, introduced on 1 September 2024.
The two-pot system divides your retirement savings into two “pots”:
- Savings Component Pot 1: ⅓ of contributions are placed here, only accessible in an emergency. Withdrawals are taxed at a marginal rate.
- Retirement Component Pot 2: ⅔ of your contribution is kept aside for retirement. When you reach retirement age you can have access to these funds. (Source)
This system strives to balance immediate financial needs and long-term retirement financial security.
While it offers a level of flexibility, however, it also gives you less control regarding your retirement income investment and management. The “savings component” in “pot 1” is available in emergencies, yet the “retirement component” in “pot 2” is inaccessible until you reach retirement age. This may hinder your desire to invest in a certain way to achieve your required financial goals.
The table below has been drawn up by an IGrow Property Agent and shows the ADVANTAGES of traditional retirement plans compared to the ADVANTAGES of investing in property as a retirement strategy. (It’s based on a Source that shows Old Mutual’s Traditional Pension Funds, Retirement Annuities, and Preservation Funds’ advantages and disadvantages).
| ADVANTAGES | ||
| Feature | Traditional Pension Funds, Retirement Annuities, and Preservation Funds | Investment Property |
| Income Stability | Provides payments in emergencies & fixed payments at retirement age. | Secure monthly rental income. |
| Growth Potential | Grows based on selected investment options. | The property will appreciate with time & the rental income will increase over the years. |
| Flexibility | Limited fund access unless facing an emergency, otherwise locked until retirement age. | Retirees can sell/rent property anytime and capitalise on the sale/rental. |
| Tax Benefits | Contributions can be tax-deductible & withdrawals will be taxed. | Various tax deductions are allowed on: rental property, expenses like property maintenance, property management fees & mortgage interest rates |
| Leaving a Legacy | Funds are given to dependents according to the Pension Funds Act. | Physical assets (properties) are inherited directly by the investor’s heirs. |
| Risk Involved | Low – moderate & market-dependant. | Low – moderate & market-dependant. |
| Additional Benefits | Protected from risk by creditors or bankruptcy. | Acts as a barrier to inflation; property refinancing is an option or it can be used as collateral. |
The second table has been drawn up by an IGrow Property Agent and shows the DISADVANTAGES of traditional retirement plans compared to the DISADVANTAGES of investing in property as a retirement strategy (based on the same source).
| DISADVANTAGES | ||
| Feature | Traditional Pension Funds, Retirement Annuities, and Preservation Funds | Investment Property |
| General Issues | Funds are usually locked unless there’s an emergency until retirement age. Less control over fund investment strategy & management. | Property management & maintenance costs incurred. If tenants default on rent and the property isn’t insured rental income is lost. |
What these tables show is that property investment is considered a safer retirement plan route because it provides physical assets that appreciate over time while also providing monthly income. Traditional retirement plans can depreciate as they rely heavily on economic market performance, and will get depleted, or even run out, over the course of your retirement.
Is rental property a good investment for retirement? Yes, we strongly believe so! Buy-to-let properties are ideal, as you can secure a rental income every month, throughout your old age and leverage various tax incentives for owners of rental properties. As a bonus, you get to leave a financial legacy for your loved ones, which a pension plan can’t achieve. Investment property can be inherited by children and grandchildren, so they can continue to receive the rental income and own a valuable asset. With IGrow’s team of expert trust attorneys, you can even ensure they inherit your properties tax-free!
According to Rawson real estate agents, “Apart from rental income, properties also appreciate when they’re properly looked after. This capital growth can create a very useful emergency nest egg.
While most retirement annuities have limits to how much capital you can withdraw as cash on retirement, properties can be sold at any time to liquidate their full value.”
When it comes to traditional retirement plans the “two-pot system” is also meant to allow people to access their retirement savings in a pinch. However, this system is much more restrictive and you may feel less safe with a retirement plan, as it’s not as easy to access funds at any given moment.
With property investment, on the other hand, you have total freedom to access rental income to cover dire emergencies. You are in a secure position financially. Every month you can receive monetary income from your property which you can save and also use to cover day-to-day expenses. If you encounter an emergency you will have money set aside to use if you need it. If you’re facing an expensive crisis, you could even sell your property at any time and use the capital for your emergency. While traditional retirement plans do allow access to funds when facing an emergency, the new “two pot system” only opens up a small portion of your funds, as normally these funds remain locked till you retire late in life.
With IGrow Wealth Investments, retirees can ensure that their properties are legally transferred to their heirs, with IGrow’s team helping them manage taxes, maintenance, and mortgage repayments. This transfer process is simplified, reducing the burden on families and ensuring the legacy continues without financial strain.
IGrow Wealth Investments: Helping retirees grow their property portfolio
When it comes to managing retirement property, IGrow Wealth Investments plays a pivotal role. IGrow helps retirees in buying a retirement property as an investment and then offers guidance on growing their portfolio over time. If you are in the market to buy investment properties, IGrow Wealth Investments will guide you to leverage capital to best meet your financial needs.
Take home message: The best route for retirement is property investment
Property investment has numerous advantages, meaning it’s the ultimate financial solution for retirement. Retirees get a sound monthly income, create wealth via property appreciation, and are protected against inflation. The happiest part for retirees is they have something substantial to leave behind for their families when they are gone!
Traditional retirement plans have potential, but they are limited regarding fund access, they are really vulnerable to market fluctuations, they can have poor growth, and can even be depleted before the end of your life. Property investment means retirees can control their physical asset portfolio, benefit from their rental income indefinitely, and watch it grow into a legacy they leave their families, creating inter-generational wealth. With IGrow Wealth Investments by your side, you can start building your property portfolio today and secure your financial future.
Speak to an IGrow property investment expert now to start looking at rental property options for your retirement, and begin your journey towards financial safety and a secure income. With our team of experts in property purchasing, tenant management, tax and trust management, and maintenance, property investment offers you financial stability for the rest of your life, and for generations to come.
