November 1, 2017
Create wealth with the right ingredients
The Daily Telegraph
28 August 2017
Retirement savings set to fall well short of what Aussies need
ALMOST half of the older Australian population faces a massive shortfall once they stop working after conceding they have a superannuation balance of less than $100,000.
Alarming new statistics released by wealth management business MLC found 43 per cent of Australians aged between 50 and 70 have less than $100,000 tucked away…
The Right time to plan is now!
Most people actually leave planning for their retirement far too late and so many people come into my office on the wrong side of 50 and they’re starting to seriously think about retirement.
They’re thinking ‘how am I going to do this, how am I going to retire? And it’s often not until that part of their lives that they actually start thinking about it.
However most find, thankfully, that it isn’t too late!
No matter when you start, you’re going to be better off than if you don’t start at all. So if planning for retirement is something that’s on your mind, why not come see how we can help.
How to Retire on a property portfolio
The 3 phases to retirement on a property portfolio
1. ACCUMULATION PHASE
We start with the accumulation phase. The accumulation phase is when we use your income and equity in your home to buy a property. As property values increase and your income increases you can buy again and you are on the way to building a property portfolio.
2. ACCELERATION PHASE
The acceleration phase is great because as the values of your investment properties increase, you are actually using the investment property income and equity to get the bank to say yes. Bottom line, if your income is positive in the property investment side and your properties have increased in equity, you can borrow to buy more.
3. MATURITY PHASE
Then we get to the maturity phase. And this is the great phase when you just sit back, kick back and wait. Because if you hold property long term, the value is going to go up, the rent is going to go up and eventually, you are actually going to be living off your property investment.
However, until you retire, two things are happening. Your wealth is increasing and your debt is being paid off without any effort from you. This is what I call ‘NPI’, non perspiration income.
Don’t be afraid of debt. And don’t be afraid of using equity. It’s these fears that hold us back and why some people retire poor. We teach people how to break out of their current situation and set themselves up for a comfortable retirement.
When you start investing and you buy a safe, conservative property, it usually starts off negatively geared. This just means it costs more than it earns. A common mistake people make is to think they need more rental income to help with the holding costs so they buy a positively geared property.
Unfortunately, when you choose properties based on high income, they are usually also high in risk and high incomes usually don’t last. High rents are usually based on supply and demand, which can change, just look at the mining industry. This means there can be a lot of volatility. Buying properties in conservative areas with the normal growth patterns means less volatility.
The value of the property goes up and so does the rent and eventually over time the property turns from negatively to positively geared. That’s where your income comes from in retirement. Remember debt is money. As well as money devaluing over time, debt devalues over time as well, which is really important. Once the rent is higher than the costs it can start reducing the debt, as the debt reduces you have more income, which means you have more income to live on in retirement.
The biggest fallacy our parents taught us is to believe a home loan is a “long term” debt.
Most of us saw our parents work hard all of their lives to pay off their mortgage, and then struggle to retire comfortably. It is nurture not nature that keeps most of us imprisoned on the mouse wheel of debt.
Our grandparents, god bless their little cotton socks, were taught by the banks how to do their banking, they passed this on to their children who passed it on to you. They had a lot to say about money…
- Money doesn’t grow on trees.
- A penny saved is a penny earned.
- If you count your pennies, the dollars will take care of themselves.
- If you can’t pay for it – don’t buy it.
Most of us believe that we should work hard, save to buy our home, spend the rest of our lives working to pay it off and hopefully, save a bit to retire on.
It just doesn’t have to be that hard. By treating your money right in the first place, learning the benefits of how loans work, and setting up the correct finance platform for both fast debt reduction and smart wealth creation, most of us can pay off our homes in 5 to 7 years (instead of 25) and acquire 10 properties in 10 years, without struggling with the holding costs and improve your lifestyle at the same time.
Excerpt from our new ebook:
NINE REASONS YOU ARE NOT RICH
AND… HOW TO FIX IT!
1. You’re listening to the wrong advice
2. You’re doing your banking incorrectly
3. Your life is a mess
4. The Einstein theory
5. You’re buying assets that aren’t
6. You’re working hard and getting nowhere
7. You think wealth equals money
8. You want to be debt-free? Big mistake
9. You don’t write down your goals and read them every day!
2. You’re doing your BANKING incorrectly
For too long we have just conformed. We go to school and get told to “do as we are told”, we are taught to respect authority, and to toe the line.
Bank managers are usually very ‘good’ with money, they usually save well and don’t get into too much debt. However, very few bank managers and bank employees I know actually know how to do their banking to accelerate debt reduction and few accumulate wealth with property or shares because they fail to fully grasp two things.
- How to maximise the power of using OPM (other peoples’ money) – they tend to be cautious and if they do invest with leverage it is at a low level of loan to value ratio which minimises their results, and
- They certainly haven’t worked out you can’t save yourself rich. I cover this in the ‘how money works’ section.
I have a number of bank employees and managers as clients and not one of them has ever come in with any knowledge of proper money management or had any fast debt reduction skills.
It is time we broke out of the norm a little. Just because it was always done this way doesn’t mean it needs to always stay this way. Let us consider that if things have changed in every other part of our lives, it might be time to look outside the ‘norm’ with the way we do our banking. It’s time to understand we need to do our banking and investing differently if we are to retire with any hope of comfort and security.
I am not looking forward to the next big wave of change that is coming, and again, that comes as with most things, from fear of the unknown. You only need to mention bitcoin, block chain and several other cyber scary things to send most of the baby boomers into ‘glaze over’ and denial.
There has been an enormous amount of change over the past year or so with the government taking more and more interest and control of what we do and how we do it as far as lending, mortgages and property goes.
Not all of the changes have been bad, and some have been from international lending requirements as the final flow on from the GFC.
I look at all of these changes as ‘uncontrollables’. We can’t control the banks rules and requirements, their lending criteria or their servicing tables. What we need to do is to modify our strategy to suit the changes and then keep going.
Friends and family are often trying to protect you. They don’t want you to try something new in case it fails, and you become worse off. Best be safe and sound and stay in your ‘norm’.
Throw in a few horror stories and you’re completely discouraged from trying. This has been happening for decades, for generations in fact.
We are taught by our parents:
- Go to school and work hard
- Get a good job
- Buy a home and start a family
- Pay off your home
- Don’t risk anything, and then
- Try to save for a comfortable retirement.
They were also taught by their parents to do exactly the same thing. Problem is, in your grandparents’ day (assuming an age here or your great grandparents’ day) they went through a depression, 2 world wars and for the next 40 years lived through a recession once every decade.
We have actually only had 3 negative growth or recession years, in the last 37 years, and they were mild ones! Even the dreaded GFC didn’t put us in recession.
The pain people felt in the post- war era is why the older generation always err in favour of caution.
- Have little or no debt
- Don’t get ahead of yourself
- Slow down
- Don’t take any risk
- Debt is risk…
Does this mean we will never go into a recession? Of course not. But it is important to note there are a huge amount of baby boomers coming towards retirement with no chance of being able to retire comfortably with the type of income they are used to.
…to read more download our ebook.