Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
Property investment for retirees is not a sure bet
With property prices skyrocketing in major cities, many early retirees or those nearing retirement might be considering investing in retail property.
It’s an asset class they not only understand but as baby boomers have greatly benefited from, with property analyst CoreLogic estimating national housing values rose 382 per cent over the past 30 years to July 2022. In compounding terms, that’s 5.4 per cent a year.
Considering many retirees, or those about to retire, have been in the residential market even longer than this 30-year timespan, that capital gain seemingly makes a compelling argument to invest in housing.
But Helen Nan (pictured), principal of the Brisbane-based advice practice Plan For Your Future, cautioned that there were pitfalls with housing investment for those nearing or in early retirement.
She said there were positives to buying an investment property. That could not be denied. But there were also negatives that must be considered, and this cohort of investors would be well served to get advice before making such a significant capital commitment.
“First and foremost are cash-flow considerations. Although a property offers rental income, it is essential to ensure it’s sufficient to meet the investor’s retirement needs. According to the Association of Superannuation Funds of Australia, a couple needs $72,633 and a single person needs $51,630 annually for a comfortable retirement.
“Individual comfort levels vary, but relying solely on rental income may not be enough, and retirees may need to supplement it with the age pension or superannuation withdrawals, which may not always be sufficient.”
She added that relying on capital growth was speculative as property markets could be unpredictable.
“Investing heavily in property with the expectation of rising prices can jeopardise retirement savings if the market does not perform as anticipated. In addition, property returns in Australia over the past three years have not reflected a normal cycle, adding to the unpredictability.”
Nan said another factor to consider was taking on debt – a risky proposition for people on the cusp of or in early retirement.
“Debts are future income spent today. If an investor’s employment income has ceased or will do so soon, taking on debt to buy property speculates on future property value increases. This can create unnecessary stress and financial strain, potentially jeopardising a comfortable retirement.”
Finally, owning property can make people asset-rich but cash-flow poor. Properties are illiquid assets, meaning they can’t be easily converted to cash.
She said: “In retirement, having sufficient liquid assets to cover unexpected expenses is crucial. Being asset-rich and cash-flow poor can limit financial flexibility and security.”
Nan said the positives were threefold – potential for capital growth, asset diversification and income.
“One of the main attractions of property investment is the potential for capital growth. For example, John, in his mid-60s and semi-retired, received a $300,000 inheritance. He and his wife, Wendy, have a combined superannuation of about $500,000.
“John is considering buying an investment property for $500,000 to $600,000 using his inheritance and part of his superannuation, hoping to benefit from the rising property market. If property values continue to increase, John’s investment could grow significantly over time.”
Property can diversify a retirement portfolio. A self-funded retiree with more than $2 million in their self-managed super fund could use a $500,000 inheritance to buy an investment property, diversifying their assets beyond superannuation and potentially reducing risk.
Nan added that investment properties could provide a steady flow of rental income that could be particularly valuable in retirement when employment income ceases. This income can help cover living expenses and supplement other retirement income sources.
“Buying investment property in retirement has its pros and cons. While it can offer potential capital growth, diversification and rental income, it also carries risks related to cash flow, market uncertainty, debt, and liquidity,” she said.
“The key to a comfortable retirement is adequate cash flow. Whether property investment is the best option depends on an individual’s overall financial situation, income needs and risk tolerance.”
