Friday, June 15, 2007

Newsletter June 2007

Our goal – to rescue you from a massive retirement funding shortfall, and secondly to move you forward

Q. How does property investing really work?

A. This is how property investing really works:

Just think that it’s now 2022 (i.e. 15 years from now) and you’re sitting on the balcony of your beach house and it’s breakfast time.

The sun is warm, the view is exceptional, and you’re just about to have a glass of mango juice before you have a fruit salad breakfast.

And as you look out over the shimmering ocean, you say to your partner “Hasn’t life been good to us?”

And then, almost in the same breath, you ask - rhetorically – “But I wonder what our life would have been like today, had we not put that investment property in place back then in 2007?”

And that’s how property investing works.

Brisbane values continue to increase

“The Courier Mail” reported on the growth in property values for postcodes throughout Queensland in its edition for 2-3 June 2007.

Of particular interest are these 5 year trends for selected postcodes around Brisbane’s south west economic zone:

Basin Pocket – up 184.4%

Booval – up 189.3%

Browns Plains – up 147.7%

Bundamba – up 140.4%

Churchill – up 185.3%

Goodna – up 210.8%

Tivoli – up 169.0%

Now, had you anticipated this back five years ago – in 2002 – how many investment properties would you have bought then?

These results endorse my recommendations, and coupled with the strong demand for tenancies as a consequence of that cluster of solid manufacturing/distribution jobs in the adjacent south west economic zone, I won’t be recommending any change in the strategy. Not that we can expect this surge to continue forever, however while it’s there, and if you don’t have enough for 15-20 years of dignified retirement, logic says that you should explore your options.

Now turn the clock forward five years – to 2012. Assuming values have continued appreciating, how many investment properties should you have bought back then in 2007?

And remember, Queensland prides itself as a “low tax state”. The land tax for the value of land in your portfolio at say $500,000 remains zero in Queensland. In comparison, you would be paying $2616 pa in NSW and $7000 pa in the ACT.

So the fundamentals remain unchanged.

Q. Is there a simple explanation for negative gearing?

A. My personal favourite is – “kiss your money HELLO” (because the taxman gives you back your money)

How much will you need?

This is a difficult question to answer – as we are each individually different – however the annual Westpac ASFA* Retirement Standard says a couple would spend – for a comfortable retirement - $917 per week (or $47,702 pa) today.

So if this notional couple – if they were retiring today at age 55 -would need an invested lump sum of $782,000 to pay an allocated pension of this dollar amount for the next 28 years (when they would be 83).

However two problems emerge immediately:

Firstly what will the purchasing power of $47,702 be in 28 years time?

We could look for an answer via the rule of 72. This says the answer is $11,925 if the inflation rate remained a constant 5% over this time.

The second question that emerges is obviously – what if they live longer than age 82?

The answer appears to be “well, obviously they would be on the pension, wouldn’t they be?”

Neither answer is really satisfactory, is it?

But consider the alternative – if they had those funds $782,000 in residential investment properties today, on a 5% yield they would have an income of $39,000 pa. Now history suggests that property is inflation protected – both as to assets as well as income.

Consequently, if property values keep appreciating as they have in historical terms, we can expect that the purchasing power provided by today’s income from a property portfolio would always be maintained.

Which would you prefer?

* ASFA – Australian Superannuation Funds Association

Are health care costs sustainable?

In April the federal Treasurer Peter Costello released the second edition of the Intergenerational Report or IGR.

The Report contains information that shows that - currently - more is spent on health care costs for those aged over 75 than for all younger generations combined. Most of this spending is government funded.

Now in the immediate future, the number of people over 80 will grow dramatically, and so increasing – dramatically - the health care burden on the government.

Australia is not alone with this dilemma. An OECD report quoted in “The Times” 30 May 2007 says that spending by the US government on social security and health care will double, as a proportion of gross domestic product, to 15% by 2030.

Is it possible that the government want “co-contributions” from you and me to cover our medical bills? What odds will you give me?

So with this knowledge, you should be preparing to fund your own health care cost in old age.

And what better solution is there then through your own portfolio of residential investment properties?

Why you should avoid the pension

The current pension is $412.50 per week for a couple.

The Henderson Poverty Line for a couple – as determined by the Melbourne Institute of Applied Economics and Social Research within the University of Melbourne - is $397.95

It is amazing that the Poverty Line and the Aged Pension are almost identical.

So now you know why I assist my private clients to avoid any reliance on government welfare.

Retirement Readiness Quiz

There is a “Retirement Readiness Quiz” at

It is a promotional site for the book “Your Retirement, Your Way” however the quiz does ask some probing questions.

One that caused me to pause was “If it turns out that you are not happy and /or fulfilled in retirement, what do you plan to do about it?”

Possible retirement hobby

I noticed in the “International Herald Tribune” 14 May 2007 that self-publishing by retirees is a rapidly expanding hobby that is attracting widespread comment.

This hobby is widespread in Japan.
Retired Japanese are writing and publishing books at their own personal expense.
“The baby boomer generation did not experience life-changing world events, nor does it feel an intense sense of duty to anything, so many of the books are easy-going,” said a librarian.

Most retirees publish books about their lives, family history, work experiences and knowledge.
A word of caution is appropriate however - self-published books hardly ever become best sellers.
From personal experience, if this is a hobby that may interest you in your retirement, file this reference

Seaview Press – in South Australia - can help you with every element of the self-publishing process.

Until next time

Bernard Kelly

mobile 0414 778 518 cell phone 61-414-778 518

P.S. Your greatest compliment would be a Personal Referral