Monday, August 02, 2010

Retirement Strategies 1 August 2010

The best product in the best location - a new four bedroom + ensuite double
garage air con on its own title in a growth corridor adjacent to job clusters,
where the rent is higher and land tax the lowest (right)


As you idly think about your future retirement, if might be comforting to consider how many “buckets of income” you will be able to draw from.

It would appear logical to think that five or more buckets would seem to modulate the risks of relying on any one source – the recent experience of those who have been relying solely on their superannuation is a salient reminder of the risks of inadequate diversification.

But in addition to superannuation, most of us will have some access to government welfare, and of course you may have some private savings.

Then there is part-time work, a profitable hobby and investment properties.

So there you already have six possible “buckets” to consider.

What you must now do of course is not to allow yourself over-reliant on any one bucket.

If you would like me to help you explore your options, contact me – Bernard Kelly – anytime.
My email is


For those stressed out by the prospect they may not have enough money saved for retirement, a study released in mid-July by the American Employee Benefit Research Institute will be of little comfort.

The study, based on an analysis of 24 million participants in work-based savings plans, is touted as the first time a national retirement model has projected when different groups, based on age and income, are likely to exhaust their retirement savings.

The conclusion: "Dramatically high percentages of Americans -- even in the upper-income categories -- are likely to run short of money after 10 or 20 years of retirement."

Nearly half of "early" baby boomers -- those on the verge of retirement, ages 56 to 62 -- are at risk of not having sufficient income to pay for basic postretirement expenditures and medical expenses.

The percentage drops for "late" boomers (ages 46 to 55) to 43.7%. Generation X (born 1965-74) has a 44.5% chance of running out of money based on savings projections.

The study factored in a variety of retirement income sources, including work-based savings plans, personal savings plans, pensions and Social Security benefits.

Savings were calculated on an assumption stocks would return 8.9% and bonds 6.3% each year.

Source “The Street” Boston, 15 July 2010


I recently ran some comparative numbers for a private client earning $160,000 on investments in Laidley $345,000, Goodna $375,000 and Coomera $445,000.

Because the tenant pays half of the costs and the taxman around a third, an investor’s personal out-of-pocket contributions are surprisingly modest although of course – as you own the investment - you benefit handsomely from the capital gains.

These were the results:

Total out-of-pocket contributions for this investor for the Laidley property would be $9,632 over four years. Anticipated ten year capital gains $345,000.

Return on investment would obviously be 34,500/9,632 X 100. This is one of the reasons why 100% debt finance is so very attractive for an off-the-plan investment.

Goodna would cost $8,904 over four years. Anticipated ten year capital gains $375,000

Coomera would cost $8,904 over four years. Anticipated ten year capital gains $445,000

Yes – your eyes aren’t deceiving you. Laidley $9,632, Goodna $8,904 and Coomera also $8,904.

The reason why the more expensive investments require less out-of-pocket contributions is that they need more (tax deductible) borrowings and as they are larger, they also provide for more depreciation

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So feel free to find out more about joining me as a Referral Agent. (We could have a lot of fun together. And you could make a lot of money - this year, next year, every year.) Your role is simply to generate leads – I’ll do the rest.

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Phone me – Bernard Kelly – anytime. My mobile is 0414 778 518 email
Australia’s Retirement Strategiest®


At the request of a private client, I recently ran the comparison between an off-the-plan investment property compared to an existing home five years old. She nominated the existing home in the same suburb (Goodna).

The new investment was available for $371,000 with expected rent $350 per week.

The existing house was priced at $315,000 with rent $315 per week.

The analysis showed that her out-of-pocket contributions for the off-the-plan investment would be $17,380 over five years, with the capital gain in ten years was expected to be $371,000 i.e. double the purchase price.

However out-of-pockets for the existing house would be greater – at $21,996 – for an expected 100% gain in ten years of $315,000.

Clearly new is better – lower contributions for a greater capital gain.

The explanation is that while you borrow 100% in both examples, the lower rent, the zero depreciation on the inclusions and the far lower depreciation available on the original construction of the house built five years ago (not to mention the full stamp duty payable on the existing house) make an older investment far less attractive.

If you would like me to analysis two investments for you – on a like for like basis – email me to


Various US studies over the years have suggested that if you pay yourself 4% pa from your accumulated retirement savings, then it will last for 30 years.

There are obvious flaws with that simple model e.g. it ignores inflation and also any need to draw a significant amount in any one year for a major expenditure (such as medical and hospital costs) but now new research by Rob Bennett shows that even a 4% withdrawal rate could cause failure if you start retirement when stock market valuations are high.

His research shows that retirement failure is quite common in the first ten years should the stock market take a severe dip if you continue to take out the standard 4%. In simple terms, your fund is unlikely to recover.

You can read more on his website


The new National Rental Affordability Scheme is certainly attracting a lot of attention, but as usual I am quite sceptical of any such new product until all the bugs have been shaken out (or become evident – such as we’ve seen with defence force housing).

On the surface the NRAS offer is attractive - if you forego 20% of the market rent (say a taxable income of $3,500) the government will recompense you with a tax free $9,140 (indexed for inflation) each year for the next ten years.

You would almost think that you will have a cash positive investment from day one.

The proposal is that this scheme will create 50,000 affordable rental dwellings by 2012 for “quality” tenants such as police, teachers and nurses and a further 50,000 dwellings after that.

Now 100,000 dwelling is about half of the national housing shortfall, and there simply won’t be enough of such “quality” tenants to move in. So eventually the scheme will need to be broadened to accept other classes of tenants.

There certainly isn’t that many police, teachers and nurses in the locations I seen to date where NRAS housing is under construction.

One of my concerns is that this scheme will create ghettos of the socially disadvantaged – although I’m advised that controls will not allow this to happen – but should this happen, any anticipated capital growth will be stunted, and then eventually who would you sell to when it is time to exit?

Another is the insurance for this new product – will you have to pay a premium for your Landlord Rent Risk insurance if you declare you are a NRAS investor?

But when I run the numbers, an investor with 100% debt will only be cash positive when interest rates are below 7.0% so you will be back to relying on capital gains to achieve a successful outcome.

However, one thing is certain. The NRAS scheme is not designed to make you wealthy, or have its focus on helping you towards 25 years of comfortable retirement.

Its function is simply to provide housing for middle income earners. Nothing else.


Why aren't we saving enough for retirement?

In his entertaining and illuminating book “Retirementology” financial services executive Gregory Salsbury tries to find out.

To do so, he combines the key tenets of behavioral finance (how investor psychology affects financial decisions), results of his focus group interviews with pre-retirees and retirees, and a smattering of cutesy terms he created, including the book's title.

Retirementology, Salsbury says, is a new way of thinking about retirement planning that considers both psychology and finance against a backdrop of the worst economic crisis since the Great Depression.

The chief reason that the US is suffering from a retirement-planning crisis, argues Salsbury (executive vice president of Jackson National Life Distributors), is that most of us are making classic mistakes in the way we invest, spend, save, borrow and earn money.

“We're not logical when it comes to saving for retirement.

“Americans worry about not having enough money to retire, yet fail to take advantage of savings programs available to them”, Salsbury says.

Acknowledgements USA TODAY June 28, 2010


I’ll be at the Melbourne Retirement & Lifestyle Expo at the Caulfield Racecourse 10-12 September.

And also at the Leisure & Lifestyle Expo in Perth (Claremont Showgrounds) 29-31 October.

I look forward to meeting you if you can make either event.


Some kind people want to pay me for this service.

Feel free to go to my membership site and pay $110 for a full membership

About Bernard Kelly:

Bernard Kelly BEcon MBA CRPC Australia’s Retirement Strategist®, is a highly sought-after advisor, retirement authority, thought-leader, author and radio commentator because he makes the complicated and mundane topics of investing and retirement fun! Bernard has over 20 years experience providing families with financial thought. He is the author of Live Your Dreams in Retirement, Property Investing for Couples, Goolwa by Breakfast and Raising Decent Kids into Substantial Wealth and publishes a fortnightly newsletter that reaches thousands of subscribers worldwide.

19 Prospect Street, Box Hill 3128 Australia. Tel 61-3-9899 8577 mobile 0414 778 518


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