How Many Properties Do You Need To Retire?

“In general, people should anticipate needing between 70% and 80% of their pre-retirement income after they retire in order to maintain the same standard of living they’re used to,” says Laura Menschik CFP, director of WLM Financial Services Pty Limited.

“If they want to travel more in their retirement, then the cost needs be added into the budget for the years planned, such as $10,000 every two years. Also, an allowance for upgrading a motor vehicle should be added; if $10,000 is needed to upgrade a car every few years, then you would need to allow an additional $2,000 per annum in their budget.”

This income level can be difficult to save ahead for if you’re working a typical day job, especially for families. As a result, many look to invest in property to grow their finances through a passive income stream. Other popular methods of generating retirement income include superannuation pensions, index funds, term deposit interest, share dividends, and unit trust or managed fund distributions.

For everyday Australians, living off a property portfolio’s rental income is a particularly appealing option. A good portfolio can be built with proper research and guidance, and the income generated can be sustained for a long period of time – while you hold on to the underlying asset.

Different locations and properties can deliver different returns. Right across Australia, there are different price points you can enter the market at. Your job is to find the best locations that will deliver the best returns. And you don’t need 10 or 20 properties – two to five really good ones will do all the heavy lifting you need to achieve your financial goals.

However, around 72% of all property investors own just one property. That should give you a clue that not too many are shooting the light out when it comes to getting a great return.

For most people, a portfolio worth around $2m is about the sweet spot – in accordance with their personal risk profile, investment timeline and goals.

Your portfolio could be composed of;

  • 4 property assets worth $500,000 each,

  • 2 assets at $1m each,

  • Or 6 assets worth $350,000.

The key is to narrow it down to the precise figure you need and work backwards.

Start with your spending habits and work out from there the cash flow you receive from each property, adding in CPI as living expenses will increase each year. This will help you work out the magic number plus volume of properties required,” says Wheregroup director Todd Hunter.

“There are also various strategies that could help investors get ahead of the game, like renovating, flipping, subdivision, investing in overseas property, and buying well below market value.”

Investors should look into putting their properties under their SMSF, which could help them avoid having to pay taxes in the long run.

“Once you establish how much you need to cover your annual living expenses, you need to gross this amount up for tax. The tax would depend on how your properties are owned, though ideally the income should be split between a couple,” he says.

“Investors would benefit from property owned in super, where earnings may be tax-free once you reach preservation age – 60 for most people. You could also buy a property with more capital gain potential, then sell it at a later stage to purchase higher-yielding investments; these are normally commercial property, residential units and townhouses.”

By focusing on the numbers, investors can make informed rather than emotional decisions when it comes to buying the right type of property for their portfolios.

It takes planning and careful consideration. Feel free to connect so we can help you with your goals.



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