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Will the Federal Government look after me in retirement with an aged pension? |
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| Over the past 10 years the Federal Government has made it harder to qualify for the aged pension and has indicated it will make it even tougher in the future. The introduction of the assets test, deeming on savings accounts and changes to the treatment of shares and unit trusts have all ensured that fewer retirees will get the pension. Retirement used to be a time to enjoy. Today it is a time to fear. Australia's retirees are fast becoming the nation's poor, squeezed by lower interest rates which is slashing the income of their investments and starving them of funds to pay bills. Today's retirees are providing a sobering lesson for future generations. Poor retirement planning has cost them their lifestyle. Retiring wealthy means planning early and building a separate retirement nest egg on top of superannuation. The Government's new superannuation rules will limit most superannuation payouts to $400,000. For many this will simply not be enough to maintain their present lifestyle in retirement. |
| If I want to retire on at least half my current salary, what percentage of my income do I need to set aside? |
| If you want to retire on the equivalent of only half your current salary, 12 per cent of your wages every year of your working life (40 years) must be set aside. That's a long way short of the 9% contributed under the current superannuation guarantee charge. Remember, half your current salary would result in a considerable change to your lifestyle. |
| Do I need a large deposit to purchase an investment property? |
| As you know, when you bought your first home, you had to come up with a cash deposit of up to 20% of the purchase price, and also be able to afford the monthly mortgage repayments of many hundreds of dollars. If this was the same for buying an investment property, nobody would ever be able to afford it. Thankfully, in most cases, its not! If you have owned your own home for a few years, you will have built up quite a bit of equity in your property. Instead of finding a cash deposit, you can use this equity in your own home to pay for the deposit that you need to purchase an investment property. And when you buy a property there are costs like establishment fees, solicitor's fees and stamp duty that together add up to a few thousand dollars. Instead of trying to find cash to pay these fees, you take these into account in your borrowings. So you don't need thousands upon thousands of dollars in savings to get started. In fact, many people don't need anything at all. |
| What if I don't feel comfortable about going into debt? |
While the concept of debt may seem disturbing, the reality is we live with debt of some form or another, and few people attain true financial independence without some form of leveraging. In fact, most Australians are actually more comfortable with debt than they realise, through the mortgage on their own home, or perhaps the loan on their motor vehicle, furniture or credit cards. There are two key principals that will maximise security when it comes to borrowing:
- ONLY BORROW TO PURCHASE APPRECIATING ASSETS
- MAKE SURE YOUR DEBT IS MANAGEABLE
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| Why invest in property, as opposed to shares or term deposits? |
| In plain terms, negative gearing allows people to borrow money to purchase an income producing property, to claim a tax deduction for many expenses they incur running that income producing property ... including loan interest. Your tax rebates, along with your rental income are used to pay off your loan, with the tiniest in amounts coming out of your own pocket. In the early stages of investing in a negatively geared property, your costs like interest and so forth are higher than the rental income you receive, so your property is negatively geared. Apart from negative gearing, there are two other types of gearing situations which offer you even more benefits. Firstly, there's neutral gearing which happens when the costs incurred "running" your income producing property match the income that the property generates. And then there's positive gearing, where the income from your property actually exceeds the costs of running the property. Negative gearing is the first step for most investors because unless you have large amounts of cash to put into the investment, positively geared properties are very hard to find in high capital growth areas. Negative gearing enables you to purchase multiple properties over a period of time for a low up-front and ongoing cost. Once your loan has reduced, and your property has increased in value, you'll start to experience neutral gearing. This process is greatly accelerated with Mortgage Reduction. Then down the track your portfolio will be positively geared which is the ultimate goal for many investors, enabling you to retire on a very comfortable income ... much higher than you'd expect through superannuation. |
| Please note: Information that is contained on the web site should be used as a guideline only. You should seek advice from professional financial, legal and real estate specialists before purchasing a property and/or applying for a loan. |
