It’s safe to say, we all desire a long, healthy retirement. And for Australia’s Baby Boomer population and generations to follow, this is a likely scenario.
How your superannuation nest egg, property assets and other investments play together to fund this desire is something financial planners work on with clients every day.
Most will agree there’s no one asset approach when it comes to securing your retirement future.
Rather, it’s about taking a broader review your entire wealth position and working out whether you have the right emphasis to achieve the best possible result within your levels of risk comfort.
Your investment property: to sell down or not to sell down?
For many investment property owners, a key question is whether or not to sell down a property portfolio as they get closer to retirement.
There are a number of considerations to take into account here.
If you have a property that generates sufficient income to meet all your needs, you’re obviously in a great position. But, most people will generally need more than one or two properties to generate enough income to get the lifestyle they want.
To optimise your investment returns ahead of retirement, it could be worth 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, investment properties can lose their appeal because many of the tax benefits are lost.
If investors approaching retirement had a choice between $300,000 in property or $300,000 in a managed fund or share portfolio, the latter could provide a number of benefits.
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, compared to needing to sell a whole property, so this may provide additional flexibility.
That said, it’s important to be mindful of the caps on how much you can contribute to avoid paying penalties. There are also restrictions on when you can access super, so if access to your funds is important, this mightn’t be the best strategy.
Adjusting your portfolio
Changes in the sharemarket can be unsettling. And in the past few years we’ve seen turbulence in the local and global economies impact on sharemarket returns.
And while history has demonstrated sharemarkets inevitably bounce back, many investors look to the perceived safety of cash or property to avoid the fluctuations of equities.
It’s important to take a step back and think long term, even if you’re approaching retirement.
It’s really important that you have an investment strategy that’s going to deliver the returns you need to provide a comfortable lifetime over 20 to 30 years.
While cash is seen by many as a safe option, the fact is cash investments aren’t likely to generate returns above inflation, and this can put you at risk of running out of money during your retirement.
As for property, we’ve actually begun to see Australian house prices stagnate or even slip over the past year which shows it’s not as bulletproof as many investors may have thought.
Ultimately, it all comes down to your objectives and ability to tolerate short-term volatility.
The role of good advice
In order to achieve the best result for your own personal circumstances, getting good advice is key to working through the property or shares challenge.
And while many people prefer to invest themselves, talking to a financial advice professional can make a difference, particularly when it comes to exploring different strategies and scenarios or in identifying new opportunities.