Almost everyone desires a long, healthy retirement and, for Australia’s baby boomer population and generations to follow, this is a realistic expectation.
Much depends on how your superannuation, property assets and other investments work together to create the passive income that can fund these hopes. Most financial advisors will agree that there’s no ‘one asset’ approach when it comes to securing your retirement future.
Rather, it’s about taking a broader approach, reviewing your entire wealth position and working out whether you have the right balance to achieve the best possible passive income streams within your levels of risk comfort.
Investment Properties: Sell down or Retain?
If you are an investment property owner, as you get closer to retirement a key question is whether or not to sell down a property portfolio. There are a number of considerations to take into account here.
If you have a property that generates sufficient passive income to meet all your needs, you’re obviously in a great position. But, most people will need more than one or two properties to generate enough income to create the lifestyle they want.
To optimise your investment returns ahead of retirement, it could be worthwhile selling down part of your property portfolio, and putting these funds into more liquid assets such as shares, bonds or managed funds.
Generally, as people approach retirement, there’s little or no debt on their investment properties. If you’re in this position, the properties can lose their appeal because many of the tax benefits are lost.
When nearing retirement $300,000 in a managed fund or share portfolio could provide a number of benefits over $300,000 in property. What’s more, investing in shares or managed funds through your superannuation fund may provide additional tax benefits.
Shares and managed funds can be sold in smaller parcels, unlike a property which must be sold in its entirety, so the additional flexibility may be attractive too.
Balancing your Portfolio
In the past few years we’ve seen turbulence in the local and global economies impact on share market returns. This can be unsettling and many investors look to the perceived safety of cash or property to avoid the fluctuations of equities.
However, history has demonstrated that share markets inevitably bounce back, so it’s important to take a step back and think long term, even if you’re approaching retirement.
Cash investments may be perceived as a “safe option” but are unlikely to generate returns above inflation, and this can put you at risk of running out of money during your retirement.
Even Australian house prices have experienced some stagnation or even slippage, indicating that it’s not as bulletproof as many investors may have thought.
Ultimately, it all comes down to your objectives and your ability to tolerate short-term volatility, as no one market is free from risk. The key is to have a long-term investment strategy that is regularly reviewed and is designed to deliver the passive income you need to provide a comfortable lifetime over a period of 20 to 30 years.
You need to work through the challenges that property, shares and other investments create, but you needn’t tackle them alone. A financial advice professional can help you explore different strategies and identify new opportunities. Call Delta Financial Group on 02 9929 3343 or contact us by email: [email protected]