Thursday, September 30, 2010

Property Investment Strategies - for retirement

If you go back ten years, and then ten years before that, and so on,
the newspapers were saying "house prices are unlikely to go higher".
But you know what happened?


Behavioural scientists have long known that we feel the pain of loss more acutely than the joy of any gains.

Now of course, with baby boomers approaching a time when they can opt out of the workforce, academic centres for retirement are starting to research (among other issues) why the old are more concerned about loss.

They call this phenomenon loss aversion, and it appears to have everything to do with your attitude to life.

So if you feel younger, and are looking forward to a long retirement filled with positive outcomes, you feel that you need to continue to invest to provide for your long term financial security – for when you eventually get there.

If you’re interested in this topic, just Google Columbia University business professor Eric Johnson and follow his research.

And of course, if you want me to help you explore your investment options, contact me – Bernard Kelly – anytime. My email is


A UK expert agrees with me – super isn’t all it’s supposed to be:

David Blake, director of Britain’s Pensions Institute at Cass Business School, says while the Australian superannaution scheme is indeed a world leader in terms of the design of the saving phase, it is only half designed because it has not seriously looked at the spending phase stage.

The current proposal to raise the contribution levy from 9 per cent to 12 per cent is impressive, he adds, but the Australian pension model falls down because there is no compulsory requirement for people to buy an annuity when they retire and hence hedge the longevity risk that they face.

“Longevity risk is a problem for every country that has a pension system because the organisations running the pension plans, whether in the public or private sector, have no real idea how long they will be making payments for,” says Mr. Blake.

“They are not yet very good at quantifying the longevity risk they face, never mind hedging it, and that’s as true for Australia as it is in the UK.”

In his view, Australia’s super system is enormously risky because of the real possibility that individuals will run through their retirement money and then fall back on the state.

There are other weaknesses: for example he says the 2007 market correction showed the danger of Australian pension schemes’ overly high exposure to equities, which has resulted in the average balanced fund delivering just a 4.5 per cent return over the past 10 years, barely beating inflation, he says.

Acknowledgments: FT.Com 19 September 2010


Eric Green, writing in The Spokesman-Review 14 September 2010 spoke about the changing nature of retirement planning.

Now, he says, planners need to guide retirees and near retirees through a maze of sometimes contradictory goals and trade-offs.

It isn’t just about the money. The old rule of thumb – that retirement income needs to equal 70 percent of pre-retirement earnings – is outdated.

The first step in estimating the duration of your retirement assets is knowing what retirement means to you.

Until you define retirement holistically, it is difficult to determine your spending needs.

Ask yourself what you are retiring to.

And consider these three criteria:
• Wealth means not only your savings, but also the cost of living and access to health care.
• Purpose includes activities that increase your sense of engagement and fulfillment. Things like hobbies, time with family and friends, volunteering for a favorite charity, and working part-time.
• Health includes your current level of health, family history, and managing long-term care risks during retirement.

Retirement income planning demands a more defensive strategy than the traditional approach used by most people.

Creating sustainable spending power from retirement assets is critical to the process of making sure retirees don’t outlive their assets, says Green.


A five year follow-up research project by Ameriprise Financial revisited its groundbreaking New Retirement Mindscape study to see how consumers' journey to and through retirement has changed.

The findings underscore the substantial emotional impact the recent difficult economic environment has had on people, especially those who are approaching retirement or who have retired within the past year.

In fact, the economy's impact has been so severe that a new stage has emerged and another has been renamed.

In 2005, when interviews for the first New Retirement Mindscape were conducted, the U.S. economy was riding a prosperous high, a peak between the recession of 2001 and the downturn that began in December 2007.

"Five years later our society is in a very different place, and as a result, consumers are approaching retirement with a different mindset," said Craig Brimhall, vice president of retirement wealth strategies at Ameriprise Financial.

"The years leading up to retirement used to be filled with a sense of excited anticipation, but now we are seeing people hesitate and really question if they are making the right decision.

“And in the first year of retirement, a stage once synonymous with feelings of liberation, consumers are facing new doubts, concerns and the reality that retirement may not be what they expected."

The New Retirement Mindscape II study, conducted by telephone by Harris Interactive, uncovered six distinct attitudinal and behavioural stages that occur before and during retirement: 1) Imagination, 2) Hesitation, 3) Anticipation, 4) Realization, 5) Reorientation and 6) Reconciliation.

This compares to five stages that were identified in the previous study: 1) Imagination, 2) Anticipation, 3) Liberation, 4) Realization and 5) Reorientation.


Source: Sydney Morning Herald 4 September 2010

Research data for the March quarter 2010 is available from the Westpac - Association of Superannuation Funds of Australia Retirement Standard. This attempts to quantify the income needed for a modest and comfortable retirement.

Modest living

The Standard’s most recent estimates put the cost of a modest retirement at $20,981 for single women and $30,399 for couples.

A modest retirement is defined as a standard of living better than the age pension allows (the age pension is at present about $17,000 for single women and $25,250 for couples) but still only able to afford fairly basic activities.

Comfortable living

A comfortable retirement is defined as one which allows an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to be able to afford things such as household goods, private health insurance, a reasonable car, good clothes, electronic equipment, domestic travel and the occasional overseas holiday.

In March, such a lifestyle was estimated to cost $39,159 for a single woman and $53,565 for a couple.

If you are concerned that you won’t have enough, contact me – Bernard Kelly - immediately. I’ll help you explore your options. email:


As reported in “The Australian Financial Review” 4-5 September 2010, major banks are now easing their loan-to-value ratios.

Westpac, ANZ, Bankwest and Adelaide Bank now offer 95% LVR facilities for existing clients, and may go higher if borrowers have other resources to pay for mortgage insurance.

Of course, the underlying “bank valuations” on any particular form of investment are generally less than market value, so borrowers will still have to find substantial amounts of cash to become investors.


Journalists are fond of shock-jock headlines, and so are attracted to short grabs by international “experts” when they comment on the value of the housing stock in Australia.

Nevertheless I am attracted to their argument that housing values have increased slightly ahead of the annualised growth rate of the economy’s 9.1% pa since the 1970s, and well in excess of the 6.8% growth in household incomes.

But after that, when they speak of the risk to the economy by banks being over-exposed to the housing sector, I disagree.

The big four may have 50% of their total assets in housing, but they haven’t been lending to NINA (no income, no assets) purchasers – as was common in the USA.

And in Australia, borrowers can’t just simply hand the keys back to the banks and walk away – as they can in the USA.

Consequently, American banks are huge owners of residential real estate, and want to exit. In contrast, in Australia there is a huge shortfall in the number of homes coming onto the market over the next few years – caused by natural growth, and both international and domestic migration.

Then there is our booming “emerging economies” economy, which is in stark contrast to the USA but in line with Brazil, China and India.

So, unless there is a sudden external shock – such as a rapid contraction in the Chinese economy – my view is that housing values in Australia will continue to perform much as they have done since records were first kept 160 year ago, and continue to double every 7-10 years.


I’ll be in Perth (Claremont Showgrounds) 9-12 November for WAMEX. Let me know if you would like to catch up for a chat.

I’d be happy to visit you at home in the evening – after the expo closes.


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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