A property investment could be the key to a well-funded retirement, one group says. Source: Supplied
INVEST in a house – or end up in the poor house.
That's the shock finding of one group which claims today's average income earner is destined to finish up with barely enough non-government superannuation to cover three years of retirement if a male, and two if a female.
At the same time, by 2033, the group says the median house price will hit $2.2 million.
Kevin Young, founder of mum-and-dad investment group the Property Club and himself the owner of a 189-property real estate portfolio, claims he has reviewed average superannuation figures and analysed inflationary trends to determine just how much super Australians will need to retire comfortably.
Mr Young said today's average super balances ($84,293 for a 45-year-old man and $47,480 for a woman of the same age, based on ABS stats) will not last the distance.
"Even with the compulsory super increases from July 1 this year, a man with an average wage and super balance would retire in 20 years' time on $422,021 and a woman on $303,782, assuming their wages remain consistent over the period," Mr Young said.
"While $41,090 is considered a 'comfortable' retirement income for today, inflationary pressures are likely to significantly increase the cost of living in 20 years' time.
"My analysis shows that in 2033 a $130,000 income will be needed to cover weekly food bills of $500 and average rents at $2000 for singles, leaving today's average single man little more than three comfortable years in retirement, and the female a pitiful two.
"Both might then be forced to live on the aged pension if, of course, they qualify with increases to the commencement age of the pension."
Mr Young says property markets may well be the key to a well-funded retirement.
Projecting a "conservative growth estimate" to 2033, he forecasts the national median property price to be $2.2 million "if you consider that the national weighted median house price was reported in June as $534,0155 and the value of a house is said to double once every property cycle, or approximately every 7-10 years," he said.
1. Mr Young tipped:
* Now is the ideal time to invest in residential property.
``Interest rates are at their lowest in more than 40 years and housing supply is short, leading to long-term price growth as demand from our ever increasing population grows.
``Property finance on the other hand is projected to stay low for the next five years.
``Many banks are currently offering fixed-rate loans of 5 per cent for the next five years.
``That's half a property cycle.
``What's more, rents too are returning a 5 per cent yield, effectively cancelling out the cost of a mortgage.''
* Leverage your existing assets
``Many of us have never thought of using increased equity in the family home to start our investment portfolio.
``In this scenario, unlocking equity enables you to purchase an income-producing asset which, if managed on a cash-flow-neutral basis, won't require additional income today to grow a significantly better retirement fund.''
* Consider residential property funds
``Consider using some of your super to invest in a residential property fund.
``Unlike a self-managed super fund, which typically requires at $150,000 deposit and a combined income of approximately $150,000 per annum to purchase a modest property valued at $400,000, residential property funds have a far lower entry point of approximately $5000.
``These funds allow you to take advantage of property as an asset class which has consistently outperformed shares measured in both 10- and 20-year periods.
``Residential property growth rates were 8.0 per cent p.a. and 9.0 per cent p.a. respectively while Australian shares returned only 6.1 per cent p.a. and 8.7 per cent p.a.
``To find out more go to: www.pfsuper.com.au.''
* Choose your advisors carefully
``Planning to fund your retirement with property investments and, more importantly, getting it right requires expertise.
``While there are many professional advice options to choose from, always look for advisors who have your interests in mind.
``If you go it alone, beware of those who represent property vendors.
``When going it alone, first-time investors can be prey to the many too-good-to-be-true properties, schemes, seminars and events hawked by property vendors.
``And if you're using your biggest asset the family home as collateral, it pays to do your homework before plunging head-first into the property market.''
* Have a 10-year commitment plan
``Whatever your life stage, don't get bogged down in the daily grid and keep putting off creating a financial plan to fund your retirement.
``While it's never too early to start, funding your retirement with property investments requires on average a minimum 10-year commitment.
``Ideally, you want to reap the rewards of at least one property cycle and do so when you've actually retired, when you're more likely to be in a lower marginal tax rate.''
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