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Is property a good investment for retirement?

Published 17 February 2022

Is property a good investment for retirement?

Life after the nine-to-five routine can be equally exciting and intimidating, knowing that you’ll no longer receive a regular income from your employer.

While relying on superannuation and the Aged Pension may have once been the norm, with an ageing Australian population we need to be a little more self-sufficient. Having a retirement plan in place is not only recommended, but essential.

Diversifying your investments to include property may make a whole lot of sense to providing extra income to sustain your retirement lifestyle. However, there are considerations in owning investment property in retirement and you should obtain good financial advice ensuring your investment aligns with your lifestyle, dreams and goals.

How much do you need to retire?

The cost of living post retirement can influence your investment decisions. The ASFA Retirement Standard September 2021 indicates that the minimum annual cost of a comfortable retirement for those aged around 65 is $45,239 for singles and $63,799 for couples. Being clear on your retirement dreams and goals and creating a budget will help you determine exactly how much you need to live on each year.

You can find our free budget planner here.

The value of property vs return on investment

The PropTrack Housing Market Outlook 2022 has reported that property prices across Australia’s combined capital cities grew by 23.8% in 2021, with the REA Group predicting further increases between 6 and 9 per cent this year. If you plan to live off rental income to fund your retirement you will need to ensure the rental return of the property per year covers your cost of living, taking into consideration the associated costs of property maintenance, repayments, insurance and rates and the expected growth in property value. By working with a real estate agent and a financial planner you’ll be able to determine what might work best for you.

Capital appreciation

If you have owned an investment property for some time or made significant home improvements, it is likely the property will have appreciated in value.

With many choices available, you may decide that selling the property is the best solution for you, giving you access to built-up equity. You could decide to live off the total sum, reinvest into an income producing investment, downsize into a smaller property or boost your superannuation.

Does an investment property affect my Aged Pension?

Centrelink uses an income and assets test, and it applies whichever test results in lower pension payments. Your investment property will come under the asset test regardless of whether it is tenanted.

However, if you have a loan secured by the investment property, Centrelink will deduct this from the property’s value, using the net value of your asset. For example, if your investment property is worth $900,000 and the loan is $200,000, then Centrelink will count $700,000 under the assets test.

Seek financial advice

Knowing that an investment property can help you fund your retirement is one thing. But what are the financial implications, and how can it impact other payments, including your super and Age Pension payments? Your financial planner is there to help you whatever your lifestyle and financial needs are in retirement.