The Daily Telegraph - Saturday - Money
‘Can I retire with three houses but no pension?’
Opera singer Sheila Barnes hasn’t saved but wants to stop working on a high note. Will Kirkman looks at her options
Bricks and mortar have provided stellar returns for many investors, but relying on property alone to fund retirement brings about unique challenges.
Sheila Barnes’s income dropped by £13,000 during the pandemic. Now the 70-year- old from Suffolk is looking to rearrange her property portfolio to provide steady income when she eventually retires.
A former opera singer, Ms Barnes teaches at Trinity College Cambridge and tutors professional singers in London and on the continent. She would like to carry on teaching for as long as possible because she has no private pension to rely on when she does eventually stop working.
She will need around £ 24,000 a year when she does retire. Her current earnings amount to around £17,000, leaving a £7,000 shortfall.
Ms Barnes owns and rents out a Grade II- listed leasehold flat in Ipswich, which earns £645 a month in rent but has maintenance costs of £2,500 a year. She also owns a condominium in Italy for which she paid €55,000 in 2015. However, Ms Barnes said this could be difficult to sell owing to its location and the “vagaries of the Italian property market”.
In addition, she owns and lives in an end- of- terrace Victorian threebedroom house in Beccles, Suffolk, worth around £ 260,000. A fluent Italian speaker, she is open to living in Italy, as long as she has a base in Britain.
She receives $1,500 (about £1,100) a year from mineral rights left to her by an American grandmother and has a half share in 25 acres of Texas pine forest, which has been in her family for 170 years, worth $10,000. She also holds £ 10,000 in cash and €70,000 (£60,000) in euros.
She recently took out a home improvement loan, with £9,915 left to pay, and needs to replace her car, at an estimated outlay of £6,000.
Managing director of Broadway Financial Planning As a result of her work, Ms Barnes has acquired a number of assets around the world. This does bring challenges when trying to plan for the future but can also bring opportunities.
I suggest the US assets, relatively low in value, are left for future generations. There is a family history attached and it would be a shame to sever this.
Ms Barnes has highlighted that her Italian property serves as a useful holiday home. As selling it will be a challenge, it seems sensible to hold on to it and enjoy it. She has a significant amount of money held in euros to spend during her time in Italy and it should last for some time.
Ms Barnes could live permanently in Italy, but she must check the legalities and practicalities of this following Brexit. Her UK income will be subject to currency changes, which could prove quite difficult when budgeting.
In addition, the cost of living in Italy may be higher over time, particularly given the pressures of inflation as the economic effect of the pandemic is addressed. She would also need to factor in medical insurance costs, which could prove expensive.
Her Ipswich flat rarely has void periods but has high maintenance costs. I would expect the yield after costs to be around 4pc, which seems reasonable. Even with a cautious approach to investing, she might expect to match that growth should she sell the property and reinvest the proceeds, but only just. There is also potentially a limited sale market given the high service charges.
The Beccles house is currently her home but it is also her most valuable asset. Given the time that she might spend in Italy, she could consider letting the property out either via a holiday home arrangement or potentially through a house share system. This could bring in roughly £5,000 a year, going some way to closing her income gap. If she were to let the property entirely, she could expect closer to £10,000 a year.
Selling the property and investing the proceeds could provide an annual income of £12,000, rising with inflation, if drawn down over the next 25 years. This option would also allow her to keep her Ipswich flat empty to use as a base in Britain, keep her holi
‘Having investments around the world can be challenging but also bring opportunities’
day property in Italy and still meet her needs. Any additional income from her tuition would then be a bonus.
In addition, her personal loan would be paid off by the end of 2025, reducing her expenditure by about £2,000 a year. She should ensure that she has a current will and lasting powers of attorney in place, ensuring that her will applies to her property in Italy, where the succession laws may differ.
Alan Harvey
A financial planner at Brewin Dolphin, the wealth manager Ms Barnes has the vast majority of her wealth tied up in property, exposing her mainly to one type of asset. While she says she is averse to risk, she currently faces it on many fronts, including in the form of an uncertain property market, interest rates, currency fluctuations and high inflation. Greater diversification is a good way to mitigate risk.
As a starting point, it would be helpful for Ms Barnes to consider what she wants in her life – and not just in a financial sense. Does she want to be a landlady in her 70s and 80s, dealing with the stress and problems this can bring?
As the Suffolk house is her main asset, it may be worth considering downsizing or selling up completely and investing the residual amount to provide her required income.
Another option would be to use services such as Airbnb for her trips to Britain, but she would need to factor this into her £24,000 income estimate.
There could also be capital gains tax implications if she sold any of the property she owns outright, such as her Ipswich flat, or from any time she did not use her Suffolk home as a main residence.
It would be ideal for Ms Barnes to use some of the €70,000 to replace her car. Depending on exit fees, it may be efficient to pay down the home improvement loan, too.
Another important point to consider is access to healthcare in Italy. The past 18 months have seen many clients focus on what they would do if they could not easily get back to Britain for a prolonged period.