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How much do you need for your retirement?

How much do you need for your retirement?

By Kate Hill, Adviseable

How are your finances stacking up for your retirement? Can the average Australian build a retirement ready property portfolio? Will your retirement nest-egg be enough to provide you with the lifestyle you expect? How big will your asset base need to be, for you to be retiring comfortably? What is realistic and achievable?

We have crunched the numbers to put together a guide to creating a ‘comfortable’ passive income in retirement by using the leverage available to you through property investment.

Facts about retirement in Australia

  • ASIC and MoneySmart suggest the average Australian couple will need around $64,000 a year in passive income to have a ‘comfortable lifestyle’ in retirement.
  • Around 80% of Australians will actually retire on less than $20,000 a year based on current numbers, and superannuation figures.
  • The Age Pension is around $25,000 a year for a single adult– and mathematically with a diminishing tax base, and a rapidly ageing population, we cannot rely on this, or the purchasing power it will have in the future.
  • In 2035, the Age pension will probably not be available until you are 70 years old.
  • To retire on $100,000 a year, you need the equivalent of $2,000,000 in assets if we assume a 5% return after tax a year. If you don’t have the money in the bank, you need to translate this into the value of your portfolio, and the returns you are earning from it each year. On average in Australia, this means owning at least three properties.
  • Incentives such as self-managed super funds and tax incentives such as negative gearing and depreciation, along with the leverage available through the use of debt, makes it very achievable for the average non-professional Australian property investor to own three properties if they start early and get the right advice, buy in the right areas, and manage their portfolio sensibly.
  • Most people are woefully under-prepared and have a ‘she’ll be right’ attitude, relying on inheritance, super or the state – an increasingly risky proposition in this day and age. Have you done your numbers on what ‘retiring comfortably’ means to you?
  • Projections about the future value of money, economies and inflation can confuse and frustrate people –so focusing on the fundamentals of wealth building is critical and sensible.
  • Doing nothing is a very good way to find yourself living in poverty and under great financial stress in retirement.
  • If you want to retire without this stress, the sooner you take action and take control of your finances, the better.
  • It is never too late. If you are in your fifties and under-prepared for retirement, you need to work smarter and harder. This further underlines the need for good advice and thorough investigation of your options.

Should you invest in property?

Let’s look at the basics of leverage. If you have $100,000 and invest it in the stock market and that returns you 10% per year – you are making $10,000 a year. Instead, if you have $100,000, and you borrow $400,000 and buy a property worth $500,000 – and it grows at 10% per year, you are making $50,000 a year, minus your borrowing costs.

Assuming with interest rates at the high end of 3%, costing you $12,000 per year, you are instead making $38,000 a year (there are other holding costs we’ve not included here for the sake of keeping examples simple)

You are accelerating your financial equity and position by using the power of money and leverage to your advantage

It is realistic and achievable for the average Australian to build a comfortable retirement through property – and whilst you may not be able to immediately buy in central Sydney or Melbourne, as an investor, you have the whole of Australia to consider, meaning that there are areas and property that are affordable for most wage earners.

The important thing, when looking at all of the numbers, is to do something, no matter what stage you are at – to get on with it – and to be smart about it.

So what do you need to consider in order to make this happen? To begin with – determine a dollar figure of how much you will need as a residual income each year to live the kind of life you expect.

You then need to create a realistic time-frame, and a detailed property plan including specific strategies on how you will achieve it.

Nine out of ten property investors do not have a proper property plan in place, so with the right advice, you can set yourself up to be leaps and bounds ahead of the average investor

So what’s in the plan? Everything starts with where you are right now, and where you want to be. Then you look realistically at the path and strategies to get you from point A to point B. Everyone’s circumstances are unique – there is no one-size-fits-all model to copy.

Analysing and understanding your particular set of circumstances and risk-profile is what is critical here.

Retiring comfortably is available to you if you take action and get organised using the right advice through property – if you have the right team in place.

What today’s numbers show is that the biggest risk is in doing nothing – and that the sooner you consider your financial circumstances, and your future, the sooner you can be on your way to achieving financial independence and the freedom that comes with it.

This is where the help of a professional adviser becomes invaluable. We are working closely with all kinds of Australians to help them plan, manage and achieve their goals – including retiring comfortably.

By Kate Hill

Property Buyer


Main image: Freepik

Kate Hill