Retirement planning – what’s the right ratio of house/pension/ISAs?

7 min Read Published: 17 Apr 2012

question mark Reader Question:

I have been working hard on my pension & using the carry forward rules will have a large sum put away - higher than the value of my home. But my savings are not too high - less than £100k in ISAs. What might the right ratio of money in house/pension/isas be?


My response:

It's an interesting question.

The first thing to do is to get independent financial advice as your wider personal and financial circumstances need to be taken into consideration. For help in finding the right financial adviser read my article 10 tips on how to find a good financial adviser

But obviously I want to give you some sort of idea.

Going back to your question you need to make sure you are comparing apples with apples. A house is an asset whereas a pension and ISAs are tax wrappers in which you can invest in assets (stocks and shares etc)

What is a tax wrapper?

When you invest, two things to consider are ‘how’ you invest and ‘what’ you invest in. The ‘how’ is whether you invest via pension, ISAs, investment bonds, collectives etc. While the ‘what’ is usually the underlying investment itself, such as equities, bonds, property etc.

Without trying to oversimplify investment but think of it like a car. In order to get from A to B (ie your current situation to your desired stage in life) you need to choose a car. The car that best suits you will depend on the journey you plan to take, your current budget etc. Every car will have different running costs, tax etc and not one car suits all. Think of this as the investment wrapper (pension, Stock and Shares ISA etc). Once you have chosen a car you need to put petrol in it to get you to your desired destination. This is akin to the underlying investment choices. Clearly the petrol drives performance but the car can enhance it. But obviously it’s no good buying a Ferrari if all you plan on doing is going to the shops and back each day. It’s a similar thing with investment - excessive costs can wipe out any benefit. A good financial adviser can help you make the investment decision that suits you and your plans.

Pension or ISAs?

When it comes to saving for retirement most people will automatically think of a pension. However, using Stock and Shares ISAs as part of your retirement planning is another option. In my article Pension vs ISA - which is best for you I cover the issue in more detail which should help answer the relevant part of your question.

How much do you need to save for retirement?

The short answer is that it depends on how much retirement income you desire as well as the amount of capital you want in the bank. The only way to work this is out is to carry out a financial plan and again I suggest you seek financial advice.

But to give you a steer the following calculator and can tell you how much a personal pension or money purchase pot (which I'm guessing you have) might generate.

The calculator can also help answer the following questions:

  • How much income will your current pension plan give me?
  • How much should you be putting away each month?
  • When can you retire?
  • Should you be saving for my retirement now?

Once you have played with the calculator (and done your sums) you should not be left in any doubt as to how much you might need to save for your retirement and what that retirement might look like.

Where should you be invested in? - (how much in property, shares etc)

You appear to have included your home in your retirement planning. That is fine if you plan on downsizing otherwise relying on the value of one asset which you also need to use for retirement planning is risky.

If instead you build a portfolio of assets it is possible to diversify your investments so as to not put all your eggs in one basket. Consequently, other than your investment amount, there is nothing to stop you spreding your risk by investing in a range of asset with which to provide an income. By choosing the right combination of assets and investment wrapper/product to suit your circumstances you can enhance your returns. This is what a good financial adviser would do for you. This value added is often overlooked by investors who concentrate solely on investment performance. While investment performance is important so is tax efficiency, suitability and risk.

However, I am fan of tools that bring complicated concepts to life. Fidelity have created an interactive (and fun) animated tool which asks you a few simple questions such as your age, what you are investing for (such as a rainy day or retirement), your view on taking risks etc and then design an example asset allocation for you.

By asset allocation I mean how much you should be investing in UK company shares, how much you should be investing in property unit trusts etc.

Interactive investment tool (give it a few seconds to load and turn the volume up)

I hope that helps.



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  1. Thanks for the note – I sent you the question. The tools will be interesting to explore. I expect to take north of £100k (current prices) from my home as I downsize so need to take this into account.

    The funds I invest in (ISA’s & SIPP) have TER’s between 25bps & 33bps. At the moment I find the 40% tax relief too much of a draw & as a result may continue to underinvest in my ISA’s – although the idea of tax free income is appealing.

    I am underexposed to bonds just now as I think current pricing means there is only one direction to go for them.

    Thanks for your help.

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