When should you R.E.T.I.R.E

When is it the right time to throw in the towel and quit the ‘rat race’?

What do you need to have before you get to that point, and what do you want to do with yourself when you do R.E.T.I.R.E? Who will control your retirement fund, and just how much money will you need in retirement?

Interesting questions aren’t they – but what does it all really mean?

As a population, Australians are living longer – with improvements in medicine and technology, we are living well into our 80s and possibly 90s, and gone are the days when we ‘kick the bucket’ at 65. If we retire at 65, we potentially have another thirty years of living to do. That’s almost another working life-time to live, with no income from the day job. We have spent our lives working towards retirement and it should be about taking it easy and enjoying life, not worrying about finances.

I look forward to viewing the data collected from the 2006 census, however the data from the 2001 census shows that 84.5% of Australians will live on incomes of $20,748 or less in retirement. Only 2.4% will live on an income of $51,949 or more.

Most of us imagine retirement to be a relaxing time in our lives whereby we improve our golf handicap, update our homes or play with the grandchildren. Unfortunately, many people fail to financially plan for the future, which means that for them, retirement will become more of a nightmare than a period of enjoyment.

Creating the road map is not hard to do; it just takes a little effort. Similar to losing weight, you need to stick to it and be consistent. It needs to become part of your routine or habit, if you like. With creating wealth, you need to consider every dollar you spend and save, because wealth (unless handed to you) takes work and commitment.

I am not a fan of handing over my wealth and asking someone else to look after it for me. I am a bit of a control freak, and I believe the only person in life who will really look after your wealth is you.

So, I prefer to manage my wealth using property as the vehicle, instead of putting my money in managed funds where someone else invests it for me. I like to source my own property deals, negotiate them, organise the finance and then have a property manager look after the tenant. According to the Cambridge dictionary, to retire means to ‘to leave your job or stop working because of old age or ill health’. Well, that doesn’t sound like much fun. My health is good (apart from the odd cold or flu) and I don’t consider myself to be ‘old’, gee, I am still thirty-something.

Hence, I have ‘redefined’ the word RETIRE to mean ‘living a full life while earning a passive income’.

R – Real estate has been an excellent vehicle to growing our wealth. There is nothing like ‘bricks and mortar’ that appreciate in value over the years to secure our retirement. By following the balanced portfolio strategy, it means that the positive cash flow properties cover the short fall of the negatively geared properties.

E – by utilising the Equity in your property, you can leverage it to buy more real estate. Capital growth properties generally appreciate more than cash flow properties. The idea is to use your equity as a deposit for your next purchase. This is best done in the accumulation phase of your life. Be mindful not to use all your equity and keep some aside for rainy days.

T – Tenants are your biggest asset. They help you sustain your investment by paying you rent. It is important to look after them as they are looking after your investment.

I – Income is what you receive after you have paid your mortgage, expenses and taxes. In retirement, the goal is to have more rent coming in and less expenses going out. This way you can live off your investments by receiving a passive income. I am not a fan of living off equity; I would prefer to live off rents and by reviewing them regularly and ensuring my income grows.

R – Reward yourself for all your efforts. Retirement is the perfect opportunity to travel to destinations you have always wanted to see. Rewards can be as small or generous as you can afford. Just remember to budget for your rewards so that you don’t leave yourself short of cash.

E – Enjoyment Life is all about enjoyment. There is no point doing anything if you do not enjoy yourself.

Plan the future Retirement is a wonderful opportunity in life to do things that you may not always have the time to do, however, don’t forget to organise a back up plan in case things go haywire. If you have accumulated a few properties, consider selling some and paying down others when you are close to retiring. Maybe even pay off a couple of properties and have smaller mortgages on others so that you can offset some of the income against mortgage expenses.

Whatever you chose to do, I like to plan for the worst case scenario, such as:

What if interest rates sky rocket due to inflation? What if property prices drop dramatically? What if rents drop? What if unemployment increases thus your tenants can not afford the rent? What if the bank gets nervous and calls you on your loans because you are highly geared or go into negative equity?

I don’t want to paint a picture of doom and gloom, but I want to make sure you think about these things. It doesn’t hurt anyone to plan for the rainy day. As we all know, everything works in cycles, and what goes up must come down.

I am the first to say that we have enjoyed a fabulous run with the property market, but I don’t believe it will last forever.

What will you do to secure your future when you R.E.T.I.R.E?

Until next time, happy investing

Helen Collier-Kogtevs Investor and Author of 47 Biggest Mistakes Made by Property Investors and How to Avoid Them.

http://www.realwealthaustralia.com.au