According to The Association of Superannuation Funds of Australia (ASFA), the average income a retired couple requires to live out their golden years in ‘comfort’ is just shy of $59,000 per annum.
Of course if you don’t particularly want to do much living once you finally escape the nine to five grind, you could eek out a more modest lifestyle.
For those prepared to forego the ‘luxuries’, like private health insurance, overseas holidays and the latest fashions, you’ll be spending around $34,000 each year as a retired couple. I’m guessing that’s on bread, dripping and water.
How will you get there?
For most of you reading this article, I’m guessing you’ll aspire to the former, comfortable retirement sum of $59,000 annually (the more the merrier). Just because…well, why wouldn’t you aspire for the best possible outcome?
But when you consider that in 1960, a 75-year-old male would have expected to live until he was 82.5 years, and a female until she was 84 (ABS), and assuming most of us will retire at around 65 years of age, that means a retired husband and wife will need well over $1 million to live out their post-work years together.
Worryingly, data from the Australian Bureau of Statistics put the mean superannuation balance in 2013/14 at just $111,749 for men and $68,494 for women.
So where is the additional $800,000 odd going to come from? Certainly not the aged pension, which currently pays couples a maximum of $658.70 per fortnight.
What about low risk assets like cash investments or government bonds to supplement your super balance at retirement?
Well unfortunately, due to the ongoing global impact of the 2008 GFC, interest rates are at record lows. This means returns on term deposits and bond yields have nose dived, making the job of generating an income from a portfolio of traditional, low risk assets increasingly difficult.
The time is ripe for real estate
On the flipside however, the ongoing low rate environment is perfectly suited to investing in high-grade residential housing assets, and there are most certainly still opportunities for the savvy investor.
With strong rental yields on investment grade property, alongside benefits such as negative gearing incentives to reduce your tax liability, many property investors are enjoying the surety of excellent capital gains in a relatively secure cashflow environment that’s as safe as houses.
Property investment also provides the benefit of compounding growth, alongside control of how and where you purchase assets for your retirement portfolio, unlike standard managed super funds.
According to ASFA, the average investment return of Australia’s super funds over the past 22 years (from inception) has been 7.1 per cent.
In August 2010, the best rate on offer for a five-year term deposit in Australia was 7.25 per cent. Several interest cuts later, that figure has slid to an average of around 2.5 to 3 per cent.
Based on the ASX 2015 Long term investing report however, residential real estate delivered an average 9.5 per cent total after tax yield since 1995. Remember, this is just the average and doesn’t account for higher grade, higher yielding assets.
More bang for your buck
Still not convinced that property might just be the most stable and reliable asset class to invest in for the future? Here are a few more reasons to ponder the addition of residential real estate investments to your retirement portfolio…
- Property is relatively ‘cheap’ right now, with ongoing low interest rates that appear to be here to stay for some time. Lower cost of borrowing gives you the opportunity to make your investment dollar go further and shore up cashflow.
- You’ll enjoy a unique combination of long term capital growth and immediate, short-term passive income. This makes for a far more sustainable investment vehicle.
- Property has proven reliability, particularly when chosen with care, and is far less volatile than many other investment options offering comparable yields.
- It’s less daunting for the ‘average’ mum and dad investor to gain an understanding of how property works as an investable commodity. And there’s a vast network of professional advisors you can tap into for those questions you don’t know the answer to.
- The government is heavily incentivising buying into bricks and mortar, as housing is largely helping to keep our economy afloat.
As with any investment, the disclaimer around property investment is that it comes with varying risks. The good news is, these can be largely avoided and/or minimised with considered strategic planning and professional intervention.
If you require expert advice to get you started on the right path to a lucrative real estate retirement nest egg, why not connect with the team here at Trilogy Funding?
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).