Have you considered retiring richer

As remarkable as this may sound, retiring richer is the easiest goal to achieve. All you need to do is buy and hold property!

 

For example, if you bought a $400,000 property, borrowed the whole amount and took out a 20 year principal and interest loan, you will own a freehold property in 20 years’ time.

 

There is a saying that property doubles every 7 to 10 years which may or may not be true depending on the particular asset you have purchased but the more important question you should be asking is “How much will this property be worth in today's money?” (i.e. take out the inflationary component)

 

In today's money, a $400,000 property today will be worth $582,724 in 20 years’ time.

The reason this $400,000 property grows in “real" terms (in economic speak, “real” means excluding inflation) is that historically, property increases on average at 2% above the inflation rate and one of the reasons investors buy property is because it is a great hedge against inflation.

 

So, how much will you need to retire on?

 

A generic approach that many financial planners and retirement experts suggest is that you should have 14 times your salary to retire on. 

 

Let's assume you want to retire on the equivalent of $1,000,000 in today's money;

 

Years to Retirement......Value of Property


Year 2................$980,392
Year 4................$942,322
Year 6................$905,730
Year 8................$870,559

Year 10..............$836,754
Year 12 .............$804,262
Year 14..............$773,031
Year 16..............$743,013
Year 18..............$714,161
Year 20 .............$686,429

 

If you want to retire on the equivalent of $1,000,000 in 20 years’ time, you need to purchase $686,429 of property today and if you want to retire in 10 years’ time, you need to purchase $836,754 today.

 

As you can see from the figures above, if you just want to retire on the equivalent of $1,000,000, potentially all you need to do is buy one or two properties today and pay them off.

 

Therefore, to retire richer, you should buy property, hold it and pay off the mortgage(s).

Note 1: You won't be retiring on the rent from one investment property... you will need to sell the property and live off the proceeds and interest.

 

Note 2: The calculations have been simplified and it has been assumed that you will pay no Capital Gains Tax (CGT) when you sell it.
 

This is only one of many strategies that can be implemented dependent on your specific circumstances and goals. Please speak to your finance professional or advisor for strategies specific to your circumstances and relevant to your goals.