Saving for retirement – The inherent flaws

The average Australian has been taught to invest in superannuation or set aside 10% of their income to build a retirement nest egg.

This is fine if your goal is to be a middle-income earner – but it will never make you wealthy.
The trouble is the concept of building a “nest egg” is inherently flawed.

Your goal shouldn’t be to accumulate a lump sum to slowly spend during retirement, hoping you don’t outlive your money.
Rather you should build an asset base that generates ongoing passive income; a self-perpetuating money machine – like a portfolio of well-located income producing properties.

As I have pointed out before we are living longer and as such we will need more income for longer. At the current bank interest rates paid on deposits you will be lucky to get 4% on your money, but if we use 4% in the calculation; to receive an income of $52,000 ($1000 per week) in your retirement you will need $1,300,000 in savings today, which will have to be indexed as time goes on.

So can you save $1.3M? That will mean saving $65,000 for 20 years with after tax income. Surprised? Not many people think about this and we certainly are not taught any of this in school.
So what is your plan?

As I have said before I am biased towards property, because I have assisted people to use property to create wealth.
It is an established fact over the last 50 or more years that property in Victoria doubles every 7 to 10 years. So why go past it! Add to this capital growth a return of 4% or 5% and you have your answer to the dilemma of how to provide for your retirement with a total return of 10% per annum rent plus capital growth), that will index by virtue of rental increases.
But be aware! Although more than 30 locations across the country now have rental yields in excess of 10 per cent, with all but one of the states and territories offering the impressive returns these top-performing suburbs are locations that are susceptible to seasonal fluctuations, including the tourism-based economies.

There is no substitute for the tried and tested suburbs that keep on keeping on. As I said in a previous post, it is not about ‘hotspots’ it is about doing your homework to find suburbs that have remained steady and doubled in the 7 to 10 year timeframe. Either that or look at where the growth suburbs are that have shown a steady capital growth over the last 10 years. It is hard to conceive that Caroline Springs was a paddock ten years ago.

The journey of a thousand miles begins with the first step.

Nothing beats gaining the right knowledge, planning the right strategy and then taking the right action.