Pension Or Property: The Big Dilemma by Finance News Bulletin

Published: 28/12/07

Wouldn't it be nice if you could disburse off your debts, start a retirement fund, build-up a deposit for a house and enjoy yourself all at the same time Nice, but often unrealisticWith so many competing demands on your money, how do you work out your financial priorities when vital decisions are not always clear slashI'm going to look at a common quandary: Is it better to make saving for a house put or planning for retirement your priority

So to begin, here are the pros and cons of going down the pension route firstWhat a pension needs above all is time and abundance of it I can't stress enough that the earlier you start the better In fact, by receiving a head start you can put aside less and still end up with the same result had you started much later on

Even if you delay for just a few years you may need to hike up your contributions to construct a sensible pension pot Take a look at How To Double Your Pension to see the full effects of putting off your pension planningYou'll also get the benefit of duty relief on your pension contributions This means the duty you have already paid on your cash can be put into your retirement fund fund

If you're a basic rate taxpayer you'll take pleasure in a 22% boost which means to invest £100 in your pension fund you only require to pay £78 out of your own pocketIf you're lucky enough to have an boss who is prepared to contribute to a work-based pension system on your behalf, it's almost certainly worth your while taking them up on the offer You may be expected to pay into the scheme as well characteristically you'll be asked to match your boss's contribution

If you don't, you'll be missing out on that additional cash from your employerDon't forget pension funds more often than not invest in shares which have the potential to produce in value over the years Did you know that investing in shares has in the past performed better than cash-based investments over the long-term While it's true pensions are generally more risky than cash in the short-term, the past suggests that shares will probably deliver improved return over longer periods

But it isn't all plain sailing When you make a retirement fund payment your money can't usually be accessed again until you retire While this may help you to keep away from the temptation to fritter, if you have more pressing monetary commitments elsewhere there's no way of getting your hands on the moneyRemember also that many people have been disappointed with the returns generated by their retirement fund fund, and the eventual level of income they have received in retirement

unluckily, the performance of your pension fund can't be guaranteedRunaway house price enlargement in new years means many more of us now consider our home to be our pension, rather than a traditional system In this way you can kill two birds with one mineral and provide for your retirement by downsizing your home or releasing evenhandedness if that's appropriate for you But remember future house price growth isn't guaranteed

Purchasing a house may be a more immediate and pressing need than your retirement fund and therefore you might consider that your priority But put on't delay your retirement planning indefinitelyBy putting down a better deposit when you buy a home you should benefit from a better mortgage deal This means inferior interest rates and therefore less outlay from you

Given that your mortgage will probably be your largest financial commitment it's levelheaded to make it as low-cost as possibleAnd the earlier you get on the property ladder the less money you'll squander as a tenant You'll also enjoy mortgage-free living at an previous age which means the money you have freed up can be spent on something elseLooking at it another way you could apply for a 100% mortgage which means you won't need a put at all

Although this is unlikely to provide the most competitive deal, your savings may be put to improved use elsewhere Don't not remember if you want to go down this way you'll still need a bit of cash behind you to cover mortgage fees and lawful feesWhat's more, accumulating sufficient savings over a moderately short period can be a considerable drain on your finances leaving you with small spare cash And since your investments aren't usually locked away, you might be tempted to raid your explanation if money gets tight

Ultimately, deciding on your financial priorities will mainly be influenced by your own circumstances If, for instance, you have accumulated large quantities of debt it may be improved to tackle that first before you even consider a retirement fund or house depositAlmost everyone will desire to purchase a home at one time or another and it's certainly the input to financial security later on But you'll also require to plan for your retirement known that it's risky to rely on measly state benefits alone

Assuming you're able to save, a cooperation between the two objectives is probably the best approachMore: Mortgage Borrowers: Beware These Nasty Deals | The UK's Cheapest Pensions |Visit The assorted Fool's Savings Centre to find the best home for your cashCan't find what you need in Retirement And Pensions Try one of our other personal finance areas

© patent 1998-2007, The Motley Fool Limited All human rights reserved This material is for personal use onlyput of Reg: England & Wales

Company Reg No: 3736872 storage bin Reg No: 735 7818 01

Visit original article: