on 9/27/2018
DEAR YIP MAGAZINE
My wife and I have bought a property over the years and we are now planning to retire. I am 57 years old and I will have a great PSS pension from the government at around 60,000 USD a year.
My wife, Karen, is 55 years old and has about $ 100,000 in her super fund. We try to determine the properties for sale in order to generate a positive cash flow, while retaining certain properties for future gains.
Can you suggest a path forward based on our portfolio? We also want to sell our PPOR next year and buy another smaller house in Canberra for up to $ 850,000.
Regards,
Bob
Decisions about how you organize your retirement involve many variables and the trick is to reduce the number of hypothetical scenarios you face. The following are my thoughts and the way I would consider retirement, and should not be construed as financial advice. In your case, let's look at what you have:
1 When you retire, you will receive a pension of $ 50,000. I guess Karen will get 5% of her super every year, which will bring you a total income of $ 55,000 a year for the foreseeable future.
2 We also know that you will receive a lump sum tax-free (approximately 375,000 US dollars) resulting in a reduction in the size of your home.
"If you want to have a more expensive lifestyle, you need to have a more sophisticated plan"
3 In reviewing your real estate portfolio [see overleaf] I will assume that it is neutral in terms of cash flow. In practice, this is probably the case today, but when you retire, your tax will be lower and, as a result, your cash flow will get worse. You must calculate the cash flow of your portfolio once you retire. If the cash flow is negative, I would sell enough real estate (and / or use the proceeds from the downsizing of $ 375,000) and reduce the level of your debt so that your portfolio has a slightly positive cash flow before tax. This way, you will not have to rely on taxes to make it work. If there are tax benefits, it will be a bonus!
4 Given the above, you need to determine your lifestyle in retirement. Are you the active type? What kind of hobbies do you have? Do you intend to travel a lot abroad? Do you want to buy a motorcycle or skydive? Or will you take care of your garden and read books? Depending on your projects, your budget may vary considerably.
5 In other words, will an annual income of $ 55,000 per year suffice? If the answer is yes, you can keep your wallet for the time being and, over time, dispose of one property at a time and indulge in enjoyable activities (a worldwide cruise or renovation of your property). home) with sales proceeds. .
If you are thinking of having a more expensive lifestyle, you will need a more elaborate plan because you will need to add an annual income of $ 55,000.
6 First, you must decide on your activity and its duration of activity, then define a figure corresponding to the annual income you want to obtain. In addition, as you get older, your lifestyle will decrease.
For example, if your hobby is flying small planes, how old are you going to stop flying? At some point, your budget will change from one that supports an active lifestyle to a more passive lifestyle, and you must allow it to be able to spend more when you're still active.
These are sometimes difficult subjects to face, but you have to be realistic! To finance this plan, you must reduce your wallet.
Indeed, the most effective way to access equity is to sell the asset. Overall, your portfolio has about $ 1.6 million in stock, in addition to the proceeds of the $ 375,000 downsizing.
Once you have calculated the amount you will need, you can determine the timing of the disposition of your real estate portfolio. You should seek the advice of an accountant because tax considerations will also determine the timing of the sale of your properties. It will almost certainly be less difficult to sell the portfolio over time than to sell everything at the same time. My other comments are as follows:
• Any excess cash that you have at any one time may be placed in the clearing account of any of your remaining loans.
• You can also consider a reverse mortgage on your home (after downsizing) in order to free up the net worth of an asset that you will never sell.
In summary, you need to think about what your life will be like after retirement, then consult a good accountant and financial planner to put in place an effective plan and schedule that will meet your expectations. And do not tell me you want to leave something to the kids! Simply enjoy your retirement. You worked hard for that!
Philippe Brach
is CEO of Multifocus Properties and Finance and
an experienced specialist in real estate investing,
mortgage broker and author of Creating
Wealth of property on any market
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