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Monday, June 22, 2020

Australia the Lucky Country? Try the Land of Broke Retirees

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Retirement Shortfalls in Australia And Why Real Estate May Be The Saviour

Research shows that only one in 10 Australians currently invest in residential property as a vehicle for wealth creation.

Furthermore statistics also show that less than 10% of Australians are retiring in a similar or better financial position than pre retirement

According to the Commonwealth Bank on their website Commbank.com.au when it comes to wealth creation for Australians' residential property remains the number one asset, accounting for $4.4 trillion of our wealth."

In comparison to other asset classes, the bank states that superannuation accounts for $1.5 trillion, Australian listed stocks $1.3 trillion and commercial real estate $0.7 trillion.

Based on the above figures one could assume that these are strong indicators that the average Australian family feel safe in bricks and mortar compared to a managed fund or share portfolio.

Over twenty years experience in most sectors of Real Estate and in particular working closely with new investors for the past five years provides the author with an insight into what stops people moving down the track of property investment.

Generally there were three repeating themes that appeared when questioning people on what was stopping them from investing in Australian Residential Property.



  1. A Fear of Investing - this could be as simple as not wanting to lose money or a deep seated fear or phobia.


  2. Don't know how to do it or where to start - some people are financially inept and for whatever reason can't put a plan in place to make it happen.


  3. Could not be bothered with the headache - Unfortunately this is where most Australian's are placed. Most people do not see the URGENT need to create wealth at this very moment.

Unfortunately it seems the majority also underestimate the amount they will require to fund their retirement and overestimate how much their Superannuation will provide.

Data provided by the Australian Bureau of Statistics from their 2012 Census results indicate that a large number of these people are in for a rude shock in years to come.

Unless they make fundamental changes to their current and future financial structures, chances are that without a lottery win or receiving a substantial inheritance they will end up either Dead, Dead Broke or Still Working though their twilight years.

Not much reward for a life time of sweat and toil!

If you grew up in Australia with Baby Boomers as parents, (keeping in mind they were raised by parents who lived through a depression) you were most likely told that debt is bad and should be avoided at all costs.

The safest way to secure your future was to save a large deposit in order buy a home. Once you had a family you would continue to work as hard as you can to pay your mortgage off and therefore when you retire the theory was that a modest comfortable lifestyle awaits.

There was also an understanding that you could feel secure in the knowledge you will always have a roof over your head and an Age Pension available to fund or supplement your existence..

Fast forward to 2013, according to the Melbourne Institute, the average Australian will need at least $38,000 in a total combined household income just to live above the poverty line in retirement.

Furthermore the website also states that as of March 2013 the maximum amount a married pension age couple could receive from the Australian Aged pension was approximately $31,000 per year.

Realistically, what would you require in 2014 for a comfortable lifestyle in Retirement,?, generally, consensus suggests that your plan and strategy should provide least $60,000 p/a in pre taxable income for a couple who are debt free.

To achieve an income in the vicinity of $60,000 p/a would require approximately $1.200,000 invested in an income producing asset, (it is important to note that this figure should not including the value or equity in the family home.)

This figure would then provide an annual income close to the $60,000 figure based on a conservative estimated 5% yearly return.

As you can imagine saving your way to Retirement seems a futile exercise.

This is where Australians need to take advantage of leveraging by using debt to your advantage.

"There have been very few wealthy people who have saved their way to wealth."

It is critical you understand and feel comfortable with the fact you will need to use debt to leverage your exposure and therefore multiply your returns.

Another equally important consideration is the importance to protect the equity built up over many years in your most important asset - your family home.

There is clear anecdotal evidence that more and more Australians are relying on using the equity in their home to help fund retirement. By doing so they are effectively reducing the amount available for future generations

To highlight the problem, the investment management firm Challenger provide data from APRA that show that the average superannuation fund for an Australian couple aged 60 plus is currently between $120,000 - $200, 000.

These figures are a far cry from the amount required and you don't need to be a mathematician to work out there is very little that could be done to fix the problem. so late in their working life. The cold hard reality is that,these people are heading for a meager existence unless they remain employable.

"So back to Property & how to avoid the above scenario?

It really comes down the old adage

"Just Do Something"

The longer you leave it the harder it is going to be!

The current Liberal Federal Government has already earmarked making wholesale changes to the Age Pension eligibility criteria. It seems their sole aim is to reduce the rapidly increasing amount required to fund Pension entitlements and to reduce future Social Service payments to a more sustainable figure.

It is obvious that many within the Government ranks can see the writing on the wall and are agreeable with the need to take decisive action.

There is a strong need for a review and implementation of policies to reduce the large forthcoming liabilities caused by the baby boomer generation heading in to their retirement severely under funded.

There seems to be a consensus that the solution may be to provide further tax incentives to encourage mum and dad investors to invest in real property.

Regardless of the methods installed, if we want Australia to remain the Lucky Country then we really need to answer the question -

"Who is going to pay for increasing costs' associated with such a large increase of an aging population?."

It is also important to consider that another key difference in our modern society compared to twenty years ago, is the increasing expenses involved to provide essential services on a day to day basis.

Couple this with the fact we will need to make more regular purchases of household items as we continue to live in a much more disposable society, It seems there is a great deal of truth in the sentiment that

"'things aren't made like they used to be"

When you consider our current situation, and with an ever changing political and business landscape in an ever more mobilised world, this would indicate that as a nation we are going to be paying the price for many years for failing to foresee the current scenario and or adequately plan strategies and policies on how to best manage or avoid it.

Unfortunately, this future will one day become the reality and for some it will make for interesting times.

Will the Generation X & Y crowds who will be heading in to their last quarter of their working lives very soon see the mistakes of the previous generation or will the trend continue in much the same way based on learnt behaviours and attitudes?

So what can you do?

There is no silver bullet or magic formula, nor are there hidden secrets that only the wealthy have access to, there is however quite a large hurdle to overcome and that hurdle is procrastination.

Given the fact the impending pain and distress is not a today problem, we tend to try to forget about this part of our finances as more of a one day in the future scenario.Unfortunately for most by the time that one day comes it is far too late.

The first step is to make a serious commitment to take action now - make an appointment to see a good advisor or strategist who understands and works with standard residential property along with the other more common products offered like managed property funds, superannuation and accumulation plans

It is important that you take control of the agenda and make it known what your concerns, fears and ambitions are.

Self Assessing your yearly tax liabilities and interest payments is a good exercise prior to your first appointment..

Once you start to comprehend the amount of disposable income the average family is left with after paying tax and interest you will begin to start seeing the need for urgent action on how to reduce these amounts as much as legally possible.

It is also extremely important to be completely open and up front with yourself and your advisor. Keep in mind that just like your Doctor, most financial services professionals have most likely seen and heard it all before, many times over.Further, there should be no reason to feel embarrassed about discussing your current situation. no matter how grim the future may look and you may want to keep in mind that over 90% of similar aged Australians are in exactly the same position.

OK, so you've found your Adviser - Now what?

There are eight important questions that need to be answered in any financial plan or strategy that involves leveraging your equity in the family home.

1) How can I reduce my debt in the shortest time frame by utilising cash flow management?

2) How can I reduce paying so much tax and how will this improve my cash flow.

3) What effect will my new structure and cash flow have on my debt levels and my plan to rapidly reduce debt?.

4) How much will I be risking in equity or cash in a worst case scenario and how long will I be exposed to this risk?

5) Is there a method or strategy available to reduce the risk involved.

6) What will the proposed strategy achieve for me in xyz years?

7) What will happen if this or that happens?

8) What are the real risks associated with my family home compared to the outcome I could expect in my current scenario.

If you are meeting with a Financial Advisor and they seem to be unwilling or unable to answer these eight questions or you feel they have a pre determined agenda just to sell you a product or service that suits them then find another.

Regardless of the previous relationships or friendships with current providers your retirement is far too important to let feelings of betrayal or loyalty come into play with your urgent need for a plan and strategy.

Other areas where you may be able to find professionals that understand the situation and know how to formulate effective strategies may include Mortgage & Finance Brokers, Real Estate Agents, Tax Accountants & Property Investment Facilitators.

Whilst a second or third opinion is always valuable it must not become an excuse for procrastination.

"The sooner you act the sooner you will become financially free."


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Source by Antonio Sawlwin