Sadly, many Australians are on track for a low-quality retirement with little money. This is a serious problem.
Property investment can be a great solution, depending on your circumstances. But before talking about solutions, we first need to understand the extent of the retirement problem.
According to the quarterly Retirement Standard, which is published by the Association of Superannuation Funds of Australia, singles need a $545,000 nest egg for a “comfortable” retirement, while couples need $640,000.
The definition of a “comfortable” retirement includes:
- Taking one domestic trip every year
- Taking one overseas trip every seven years
- Owning and maintaining a reasonable car
- Eating at restaurants occasionally
- Replacing shoes and clothing when they wear out
As you can see, that’s a reasonable quality of life, but hardly luxurious. (If you want to travel and eat out more, you’ll need to retire with a bigger nest egg.)
So are Australians on track to achieve the $545k / $645k retirement targets mentioned above?
Unfortunately, a lot aren’t. The median super balance at retirement was only $208,200 (males) and $168,000 (females) in 2020, according to the most recent data from the Australian Bureau of Statistics.
What happens when you run out of money? Fortunately, in Australia, you have access to the age pension. But that provides limited funds:
- Singles = $24,357 per year (maximum basic rate)
- Couples = $36,722 per year (maximum basic rate)
If you just drift along during your career, you may wake up one day and realise you’re going to retire with a depressingly small nest egg – and that you’ve run out of time to do anything about it.
So unless you want to spend your golden years in poverty, you need to take action – now.
How to solve the retirement problem
The key to building wealth for retirement is to do these five things:
- Increase your income
- Reduce your spending
- Invest the difference
- Do so in a tax-effective way
- Play the long game
The first two points are self-explanatory.
When it comes to investing, you have a range of options, one of which is property. CoreLogic research found that over the 30 years to July 2022, Australia’s median property price increased by a massive 382% – and that doesn’t even include rental income.
If you were to buy several properties during your working life, you could:
- Live off the rental income during retirement
- Sell your properties when you retire (which would hopefully be worth a lot more money than you paid for them decades earlier) and use that money to fund your lifestyle
- Retain some properties and sell others
If you want to invest in a tax-effective way, it’s important you get professional advice from a financial planner. But one thing worth noting is that you don’t have to pay tax on a property’s capital gain unless you sell it. So as the value of your property portfolio grows from year to year, you won’t have to pay tax on those gains (assuming you don’t sell any of your properties).
Finally, it’s important you play the long game. As mentioned above, CoreLogic found that property prices increased 382% in 30 years; but that timespan included six downturns. It’s hard to make money from property in the short-term, because you need to get lucky with market timing. But if you remain invested for the long-term, you don’t need luck, because history suggests you’ll experience both booms and downturns – with the ups significantly outweighing the downs.
The best time to start saving for retirement was yesterday; the second-best time is today. Property investment isn’t the only way to build wealth for retirement, but it can be a very, very effective strategy.
Want to retire in comfort? High Income Property can help you build your wealth. To discuss your options, schedule an online meeting or call (02) 8007 4001.