Income After Retirement: How to Choose the Best ISAs for Over 60s
Income after retirement: choosing the best ISAs for over 60s
Experts predict that each of us will need at least £600,000 saved in order to live what most people would regard as a comfortable retirement. However, research from the FCA showed that 15 million people in the UK aren’t saving for retirement at all.
This makes a reasonable case the state pension alone is not enough to support a comfortable living post-retirement, so it’s important to start thinking about how you’re going to save and continue earning income.
The returns on traditional savings accounts are often pitiful and can be easily cancelled out by inflation, while investing in the stock market may represent a bit too much of a gamble for some retirees who need to ensure a consistent income.
People need to start saving much earlier for their retirement pots, and they need an investment option that is going to deliver reliable and consistent returns both before and after they retire.
This is where ISAs come in. There are a several different types of ISA, and each has its own pros and cons. Of course, they all represent tax-free earning opportunities, but they differ in their levels of risk, minimum entry points, rates of return, and investment rules.
So, to determine the best ISAs for over 60s, a number of factors need to be considered.
What makes a good ISA for retirement saving?
If you’re looking for the best ISAs for over 60s, there are a few key things to look out for:
- Better than average returns – As a retiree, you can’t really afford to wait for years to realise a good return. You want an option that’s going to deliver great returns quickly – and, of course, you want your investment to be worthwhile.
- More predictable, consistent returns – If you’re saving for retirement, you don’t want to incur too much risk and ideally want a reliable idea of the return you’re going to make.
- A good level of security – You need to understand what protections are in place, if any. This is particularly important for IFISAs as they can contain various types of loans, some secured and some unsecured. At The House Crowd, all investments are secured by the underlying value of the property, which means that if the borrower defaults, the property can be sold in an attempt to recover your money. However, property prices can fall, so there is no guarantee that your money will be recovered. Unlike cash ISAs, IFISAs are not covered by the Financial Services Compensation Scheme (FSCS).
- Invest through a reputable platform – Your ISA provider should be reliable, have good customer service, and be fully transparent about how your money is invested.
- Shorter investment periods – Shorter investment periods generally mean that you can receive your interest pay-out earlier and your money won’t be tied up for a long time.
- Compound interest – Compound interest growth can be a crucial way to increase your returns, so make sure your ISA provider enables it.
- Limited barriers to entry – Your provider should let you get started straight away with lower minimum investment thresholds. Not everyone is going to have a huge lump sum to invest.
Now that we’ve covered a number of crucial considerations, let’s take a closer look at how specific types of ISA stack up.
Stocks and shares ISA
One disadvantage of stocks and shares ISAs is their unpredictable nature, which is not ideal if you’re looking for consistent returns for retirement. Stocks and shares can easily be under or overvalued and the market can be volatile.
They can also be expensive (as you often have to pay a management fee) and they’re usually intended to be a long-term investment. You can use a self-select stocks and shares ISA, but they can be time consuming and complex to manage by yourself. Wouldn’t you rather spend your retirement worry free?
Cash ISAs are the traditional ISA of choice – they’re simple, secure and popular.
However, they have steadily declined over the last 20 years. The returns are paltry (usually below 2%), which means that that they can be wiped out by rising inflation. Cash ISAs aren’t for anyone looking to make significant returns on their investments.
Yes, cash ISAs are generally seen as reliable and clearly have their uses – but will they give you a significant enough return to support you through your retirement? Probably not.
Innovative Finance ISA (IFISA)
The Innovative Finance ISA (IFISA) – also known as a peer to peer lending ISA – was created in 2016 and allows you to lend directly to consumers, businesses and property buyers that need an injection of capital.
IFISAs could be one of the best ISAs for over 60s if you are prepared to take a risk with your money because the interest rates are usually significantly higher than cash ISAs (as there isn’t a bank or building society in the way to manage the account or take a cut of your interest). For example, The House Crowd’s IFISA offers a target rate of 7% per annum and allows for compounding interest, whereby the returns are automatically reinvested.
Depending on your provider, you can spread your investment across several different loans (therefore spreading your risk). However, not all IFISAs are based on secured loans (a number of them are based on unsecured loans, which are inherently riskier) but other platforms should be able to reassure you of security measures that protect your investment.
At The House Crowd, all of our loans are secured by a legal charge against the borrower’s property, a conservative loan-to-value is set on all loans to protect against property market fluctuations, and we conduct thorough credit checking and due diligence to assess potential borrowers.
The House Crowd’s ISA
As you can see, the IFISA stands out as a great alternative for retirees who aren’t convinced by cash ISAs or stocks and shares ISAs.
The House Crowd’s Innovative Finance ISA automatically diversifies investments across a portfolio of secured peer to peer lending and property development opportunities. This means your risk is spread and your money is working hard for you.
You can invest up to £20,000 per year tax-free in The House Crowd’s IFISA, starting with a minimum investment of £1,000. The minimum investment term is three years, and you can either compound your interest and receive it twice a year.
Capital at risk and rates not guaranteed. Withdrawals may be restricted due to illiquidity. Not covered by the Financial Services Compensation Scheme (FSCS). Please read our full risk warning.