Did you know that the majority of Australians fall drastically short of what one would consider ‘enough’ for a comfortable retirement? The average savings of adults in Australia is just $28,246 . It is disturbing to think about the implications this low figure could have on retirement.
I meet many people on weekly basis who feel that they are doing well because they have saved $60,000 – $80,000. But are they? Let break down the numbers!
Economic advisors generally agree that, to achieve a comfortable retirement in today’s economy, a homeowner needs to accomplish two things. Firstly, they need to pay off their mortgage, and be free of rent payments. And second, they’ll need to clear $80,000 in annual, gross income.
The median house price in Sydney is currently $872,934, and for the sake of keeping things simple we will round the number and assume that your home is worth 1 million dollars. Based on that figure, in order to generate $80,000 of gross passive income with a 5% rate of return, you need to have a real estate portfolio that is worth approximately, $1,600,000 million, and this real estate portfolio must be paid off.
Are you following so far? You need to pay off $2,600,000 in real estate debt by the age of 65.
So, let us explore how well you are really doing…
I’ve assisted hundreds of clients a year turn property investment into a solid retirement nest egg. The average savings for residents of NSW is $34,800, which is well above the national average. But it still falls well below the amount of savings required to purchase a $500,000 property. You’d need about $70,000 in cash saved for that. In fact, if you are 35 years old and you’ve been working for roughly 15 years and you have saved $70,000, then you’ve actually saved an average of just $4,600 per year. Not much, right? if you stay on your present course, you will save about $138,000 more by the age of 65 Assuming you’ll work for another 30 years – This brings your total savings to circa $208,000.
But I have super?! Well, the average super balance in Australia is $144,900 – so if you combine your life savings of $208,000 with the average super balance of $144,900, you get a total figure of $352,900. Given that the average life expectancy for Australians is 82.5 years , if you retire at 65, you’ll need to make your savings last for 17.5 years at least. And, a simple calculation shows us that your total savings of $352,900, divided by 17.5 is just $20,166 per year. That is significantly less than the $80,000 your future self needs. So how will you come up with the extra $60,000 per year?
Here is how – over the next 10 years, you will invest in 4 properties worth $500,000 each. Based on previous price index growth it is probable that your investment properties will double in value over the next 10 years. This means by the time you retire; you’ll be sitting on a very comfortable portfolio that’s worth over $3,000,000. And, if liquidated and divided by your projected 17.5 years of retirement, based on the table below you’re looking at over $200,000 per year in gross income – which is more than double our $80,000 projected need.
It’s understandable to have some fears and concerns about real estate investing. But if you’re sitting on the fence, you’re not making any money! As Louis Glickman once stated, “The best investment on earth, is earth.”