A Financial Reality Check

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A Financial Reality Check

Planning for a Wealthy Retirement

Asked recently about what I do for a living while I responded coyly, ‘I’m a property investment advisor’. The last thing I want to do is come across as aloof, but I’m just not that property guy who jumps at you and starts telling and selling from the first handshake. Perhaps one of the reasons why I’ve done okay in business is because I’m fairly laid back. People enjoy doing business with me and we become friends. Anyway, back the story, after my response and failed attempt to deflect the conversation away from me, she pressed: ‘tell me exactly how you earn a living.’ No getting around that, here’s how I responded: ‘Our company helps ordinary Aussies to get ahead by giving the best property investment advice Melbourne offers to place them in a financial position where they can relax when they stop working.’ The relaxed part is important. That’s where I think everyone should be when they’ve done the hard yards, worked their butt off, raised a family and so on.

That response all but sums up what we do here at IPH. And it’s a bloody good job, all the staff here love what they do. It’s not the money, it’s the satisfaction we get from changing the financial direction of someone’s life in a positive way. Whenever we are researching material on the retirement climate in Australia, we always freak out. Depending on what you’re reading and where you’re getting the information, what entity is compiling the statistics etc. you’ll come across some gut-wrenching, almost sickening information. A recent HSBC report stated that more than 80% of Australian’s will not have enough for a comfortable retirement. Digging further we found that ‘comfortable’ in this instance amounted to a paltry $40,000 per year to live off.

What kind of life can you enjoy on $40,000 per year? Your mortgage would need to be fully paid, no other debt, and the cost of fuel, groceries, entertainment and so on would have to decrease for this to be liveable, in our opinion. In today’s dollars, all conditions being the same as above, I reckon at least $80,000 is the minimum you’d want to have some fun. You know, go to the footy, holidays pub, eating out at least once a week, pressies for the kids and grandies, not being tight all the time.

Let’s construct a basic case study to further illustrate:

Age at present: 45retirement-plan

Years to planned retirement: 20

Desired income in retirement: $80,000

Life expectancy (that sounds awful): 85 years

Debt-free cash required at retirement: $1,600,000 ($80,000 p.a. for 20 years)


Debt-free assets yielding an average 5% at retirement: $1,600,000 ($80,000 income)

(This does not take inflation into account which at 2% per year would mean that in practice, today’s $80,000 would be more like $120,000, therefore you’d need 20 x $120,000 = $2,400,000!)

The reality check: Do you, or don’t you have a plan in place that will see you reach a figure somewhere close to $2.4 million dollars in cash or income producing assets by the time you retire, let alone $1.6m. Aside from meditating on the things you’d love to be doing when you’re no longer required to be in the office, shop floor or shovel, have you taken the time to work out some kind of a plan, with or without the help of a professional adviser of some description?

This is the first and most important part of the work we do for our clients because often it’s what jolts them into action. It’s a ‘STOP: let’s think about where you’re at versus where you want to go’ process. Everyone wants to be rich, to have lots of cash, be happy, own investment property, but few know how to get there. Even fewer take the time to learn, or upon realising they aren’t the type of person to ‘study’ property investment, actively seek property investment advice from someone whom can help them realise their dream.

On a first consultation with one of our Advisers, you’ll likely be asked some of the following questions (in a pretty relaxed way):

  • What kind of lifestyle would you like to enjoy in retirement?
  • What investments do you currently own to grow your money?
  • Do you have any plans for an income source in retirement?
  • Do you have a plan or schedule to pay off your home?

Try getting your partner to sit down with you for a couple of hours (you’ll need at least that) and discuss these sorts of questions.

In addition to this, you’ll also need to map out (and be honest with) answers to these sorts of questions:

  • What is the likelihood of our household income increasing over the next decade and how much will it increase by?
  • How much ‘bad’ debt do we have and how long will it take us to repay it?
  • Realistically, how many years can we see ourselves earning a reliable, reasonable income?

There’s so many more questions like this that if you’re serious about getting ahead and being comfortable in retirement, you must then take the time to think deeply about the answers.

Buying investment property is easier and more affordable than you think. You don’t need to wait until you pay off your home entirely to get started. You don’t need to completely pay off your credit card, or have finally put your kids through school to begin building your retirement fund.

Depending on your situation and a variety of factors, owning a well-chosen residential investment property shouldn’t leave you out of pocket at the end of the financial year. We might say ‘it will cost you nothing to hold’. Sure, you might have to tighten your belt a little, re-prioritise your spending or budget, but the investment shouldn’t be burdensome. My point here is that you can invest, and still pay the credit card, put the kids through school, pay the home loan, etc. The longer you own the investment property, the longer you are in the market, the wealthier you will become. It’s that simple.

While we’re on the topic of building wealth, we should also consider the impact of the increase in value of the property on your net worth, as newer investors wonder how the wealth is actually ‘created’ to use industry jargon. Very simplistically, the property type we recommend will grow at a greater rate than 5% per annum on average, which (without the specifics of calculations for this example) in year one would see you gain approximately $25,000 in net worth, increasing incrementally through to year 10 where you’d be gaining in the region of $40,000+ per annum and so forth.

Many people also don’t realise that this increase in equity is non-taxable (a paper profit), even when you decide to refinance and invest in a second or third property. Professionals – property investment advisors Melbourne specialists who know the market well can do much of the work involved in finding a property investment that is going to yield similar results and most importantly, be a pleasure to own and create that nest egg you require in later life. Hey, you might have had a proper plan from the start and be able to bequeath your property to the kids!

Let’s say we are no longer in this low-interest rate environment and the investment property requires you to invest a few thousand dollars over the course of the year to own and operate while you sit back and watch your property grow in value. Would you invest this relatively small amount of money each year for the peace of mind that you’ll ‘be okay for money’ when you stop working? Or, would you rather expensive clothes, homewares or holidays now, and make ends meet on the pension in retirement? This is no joke.

I don’t mean to be confrontational at all, but at the same time, you might indeed need to do this with your partner or organise a ‘by yourself meeting’ and get real. I’m as guilty as the next person when it comes to spending. Quick to get my wallet out for anything I think I’ve worked hard for and have earned – from booze to brand new shoes.

What I do now, when I feel the urge to spend, is keep a list going of all the things I want. For a short time, I tend to obsess about them: want, want, want. So, I find the best of that particular item online and bookmark it. Then when I get a moment I go and look at it (online), I go to the store and touch it, and keep on doing this for a while but never buy. What I find is after a few weeks (this is a bit strange, but stay with me here) I no longer covet that thing, whatever it was, and guess what, I’m just that little bit richer for it. While we’re giving hints on how to save, try keeping separate accounts: A savings account which you contribute to regularly but never touch; a holiday account; a ‘splurge’ account; an everyday account and most importantly, an investment account. They cost nothing to have and you get to siphon your money off every time you’re paid so can then work within the confines of your budget.

Coming back on topic, it’s probably worthwhile touching on how to know if you can afford to invest and still live without being overly strained. Again, it’s not difficult to calculate, and you should be operating within the framework of a budget regardless. If you don’t have all the tools, don’t have an accountant or financial planner that is forthcoming with help (we can assist in both areas) then it might seem daunting and you’ll inevitably need some hand-holding, not least because of the uncertainty or lack of confidence you might have in your own maths.

When it comes to investment property advice, IPH have all the expertise, experience, connections, tools, formulas, programs, calculators and anything else you’ll require to plan so you can be 100% sure you’ll be able to invest with complete confidence. Another big transformation we help people make is from thinking ‘I can’t afford an investment property’ to ‘how can I afford an investment property’.

If you’ve never had a financial reality check – take action. It’s easy and only requires some thought, planning, knowledge and a relatively small amount of time. Seems like it’s all too complex for you, or maybe you don’t trust yourself to make the first step happen? Call me directly on 0438 239 727 or email to brodie@iphelp.sombrilladigital.com.au This is probably a good time to remind you that the initial consultation with me or one of the advisers here is indeed a reality check! It’s relaxed, easy-going and no cost. In fact, IPH is a ‘fee for service’ advisory and we only charge for services rendered as any professional firm would. A property plan, tailored to your specific situation is $200 and would be refunded when you engage IPH as your buyer’s advocates and invest in a recommended property.

Good luck with your investing and feel free to contact me with any questions you may have.

Brodie Brown

Senior Property Investment Adviser

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