Is the FTSE 100 or a buy-to-let property the best way to supplement your State Pension?

Could the FTSE 100 (INDEXFTSE: UKX) offer you a higher income than a buy-to-let property to boost an inadequate State Pension?

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With the State Pension being just £164 per week, it is unlikely to be sufficient to provide for most people in retirement. And with the age at which the State Pension is received set to increase to 67 and then to 68 in the coming decades, enjoying a financially-free retirement may become more difficult for many individuals.

As a consequence, many people are likely to seek to make their own arrangements when it comes to planning for retirement. Of course, there are a number of different options available to individuals in this regard, with investing in the FTSE 100 or having a buy-to-let property being two of the most common. Which one, though, could boost your retirement prospects the most?

Complications

When it comes to which asset class is the easiest to manage, the stock market easily wins. Since the advent of the internet, the ease of buying or selling shares has improved considerably. Now, opening an account, funding it and buying shares can be done in a very short space of time. An individual does not even have to leave their own home.

In contrast, buying a property is incredibly complex and usually very stressful. It has become even more so in recent years, with the availability of buy-to-let mortgages declining. The process of buying a property is full of risk, with the potential for surveyors missing obvious faults with the property and the threat of being gazumped by another bidder. Even after a property has been purchased, there are risks in terms of having void periods, while tenants failing to pay rent is unfortunately a fairly common occurrence.

Return potential

The return available from shares has historically been high. The FTSE 100 has historically delivered a high-single-digit annual total return, and it is likely to do so in the long run. Certainly, there is scope for periods of disappointment and volatility. But for long-term thinkers it remains a relatively solid investment opportunity which is likely to generate impressive returns.

Property prices have come under pressure in the last couple of years, with investors and consumers very nervous about Brexit. This could create investment opportunities, since demand for housing is likely to exceed supply for a generation. As such, it could be argued that property offers high return potential – especially when leverage is added to the mix.

Cost woes

However, the costs involved in buy-to-let investing are making it less appealing. An additional stamp duty rate of 3% is applied to the purchase of all second homes in the UK, while mortgage interest relief is being phased out for higher-rate taxpayers. Compare this to low share-dealing costs and tax avoidance opportunities such as ISAs, and it is clear that shares could produce higher after-tax returns over the long run.

As such, and while buy-to-let has made many retirees incredibly wealthy in the past, the returns potential and ease of buying shares means that they could be the best way of supplementing the State Pension in retirement.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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