Property investment options for retirement

On average, 31% of the pensioners believe they have not saved enough for their capital to last for the rest of their lives and 33% of members currently have a monthly shortfall between their income and expenses.

Adrian Goslett, CEO of RE/MAX of Southern Africa, says that while it has been widely reported that the South African retirement industry is under constant pressure to deliver adequate and sustainable benefits to its pensioners, and local retirement reform is on the cards once more, it cannot be emphasised enough that people need to start working towards their retirement fund as soon as possible.

He points to research from the Sanlam 2011 Benchmark Pensioner Survey where pensioners were very clear in their advice to start investing and saving as early as possible, start planning for retirement at an early age and make more enquiries and learn more about investments, investment choices and retirement.

“Property,” he says, “has always been a solid performing, long term investment, and therefore could be an ideal investment vehicle for those looking to add another element to their retirement policies and investments.”

He explains that if a person had to retire at 65 years of age, they will need 75% of the income earned when working to enable them to live a comfortable life. “Added to this,” he says, “the income stream needs to be sustainable enough to last at least 30 or so years, given the current life expectancy statistics.”

While there are many investment options available for those who are looking to start building up a retirement portfolio, including savings mechanisms and various retirement plans, Goslett says that well researched and solid property investments should also be considered as a key element of a retirement portfolio as real estate remains one of the best performing asset classes, despite the recession and its effects on current property prices and demand.

“This is because real estate investments offer diversity from the other alternatives that typically make up a retirement portfolio,” says Goslett, “added to which, performance of real estate is not linked to another asset classes which means that property investors can still benefit from their real estate purchase when other asset classes are struggling. Buying a property also offers investors long term appreciation opportunities and the potential for the property to contribute to a regular income stream.”

Goslett says there are two ways in which an established property portfolio can benefit retirees. One is that an investment property can be used by retirees to generate an additional income stream. “The buy-to-let market, for example, is currently performing very well considering that rental demand is strong,” says Goslett. “Tenants in buy-to-let properties can provide a stable income stream for retirees, should the property have been bought and paid for in full before retirement age.”

Goslett notes that investment properties can also be sold to provide a lump sum cash injection to retirement funds, once again provided that this property has been paid off before retirement age is reached. Added to this, an investment property can also provide extra avenues of equity to tap into, he says.

“While all investment options carry a certain amount of risk, a property investment which is well researched, bought for a good market-related price early on enough to ensure that it is paid off by retirement and is situated in a good location in order to retain rental demand and resale value will provide a solid retirement investment,” Goslett concludes.

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