You

If the thought of retiring or stopping work scares you, now is the time to act! Retirement, financial freedom, a holiday property, the kid’s education, helping the kids with a deposit on a home – CHOICES.

The best reason to invest in anything is to have choices. Most people, although they love their work, would prefer to have the choice of when to stop working. The question is, could you live the way you want?

We’re going to get interactive early on which means it’s time to take out your pencil and complete the following questions.

The amount of money you will need at retirement or when you stop work will of course depend on your lifestyle choices, present and future commitments and the action you have taken already to build wealth. Now, take a look at our current age pension:

When we conduct this simple exercise at seminars and with clients, we find that nobody writes down a figure lower than the age pension.

Whilst this is a good thing, it shows you that it would be an enormous adjustment for you to give up the salary you wrote in question 1 (by your choice or your employer) and revert to the pension. Almost a third of our population will be forced to live on $22,536 per year ($13,488 for singles), so if you recognise that the age pension will be insufficient for you, you will need to take action and put in place a strategy that will enable you to hold a portfolio of income producing assets to provide the lifestyle you desire when you stop work.

So how much will you need?

Below is a simple formula often used by financial planners to allow you to see how much you might need in income-producing assets to fund your retirement. Income producing means just that, your family home is excluded, as you don’t derive an income from it.

If you can plan in advance how much you want to live on when you stop work or retire you can plan how much you will need to have accumulated by retirement. Don’t forget, you could be in retirement for at least 20 years.

As this table shows, if you want to live off $50,000 per year in retirement, you’ll need approximately $1,000,000 in income producing assets. It is said that if you had the $1 million invested, earning an average return of 5%, it would give you your $50,000 per year. But wait, there are a few flaws in this calculation.

Firstly, it does not take into account inflation and is calculated in today’s values. Put simply, inflation is when your money loses value over time, or doesn’t buy as much as it used to. At a rate of 3% inflation, $50,000 today would only buy you around $36,000 worth of goods in ten years time.

Secondly, It does not take into account the effect of fees, taxes and payments to financial advisors. If you have someone else manage your investment, you’ll be paying a fee. This could be your super fund or your financial planner and could result in thousands of dollars between now and retirement.

Finally, It also assumes you are only going to live for 20 years in retirement. Advances in medicine and technology, combined with healthier lifestyle choices, have resulted in an increase in life expectancy. Women are now expected to live to the age of 83 and men to the age of 79. This would mean if we retired at 55, we’ve only put away enough money to live for 20 years, or until we are 75. So, unless you’re planning on dying at 75, you may want a bit more! Finally, it assumes you will pay off your home and all other consumer debt like credit cards, personal loans etc before you retire. For many of us, this is simply not possible as we struggle with things like rising interest rates and cost of living throughout our lives.

So while the table above is not perfect, it’s certainly a starting point.

In this book, we’ll teach you the secrets that professional investors are using to achieve their retirement goals, through the use of a very unique asset class - property, and the finance and tax know how to make it work for you.

What’s keeping you from moving forward?

Many of our older generation, and most financial planners, have a passive investor philosophy that often sounds something like this:

“ …Work hard, make sure you’re contributing extra to your super, if you own a home, pay off the mortgage as soon as you can, if you have credit cards, pay them off.”

“Also, have a balanced portfolio of shares and when you retire, invest and live off your super and of course, diversify, diversify, diversify?.…”

Whilst not exact, we’re sure you have heard this comment - disguised as financial advice before. This traditional advice is good for the average investor, the person who simply turns over a bit of his or her money each month for someone else to manage. Many investors have been caught this way. How many news stories have you heard where average mum and dad investors have given money to an advisor or managed investment scheme and had it squandered through the poor decision making of the company? You need to know how you can do it yourself with the guidance and expertise of successful investors, but most of all, retain full control.

Mooring lines

Like any important decision, there’s that little voice inside your head that sometimes second guesses you. We call these voices ‘mooring lines’. A mooring line keeps a boat safely anchored to the wharf, so that in the case of rough seas, or bad weather, the boat remains attached to the jetty. Unfortunately, if these ropes are never released, the boat will never set sail. So just like a boat tied to the dock, you will never achieve your investment and retirement goals without releasing your mental mooring lines. The most common mooring lines are based around fear, hovever fear can be overcome with knowledge.

The top 6 mooring lines of fear

1. Fear of acting without sufficient knowledge – “I don’t know anything about investing, so rather than find out about it or ask for help, I’d rather do nothing”

2. Fear of making the wrong decision – “What if I buy a property and a better one becomes available later? I’ll keep waiting!”

3. Fear of being cheated - “I’ve heard that some properties are over priced in this market and many people have been ripped off - I won’t buy anything in case I pay too much”.

4. Fear of change – “My parents told me to reduce debt. I’d rather pay off my home as I don’t want to borrow money and get into more debt”.

5. Fear of looking bad to others – “My friends are telling me that property will drop in value. What if my friends are right?”

6. Fear of the past – “My mate bought a property and it went down in value”

So how do you overcome these fears? Firstly, acknowledge them. Everyone has these same fears but you must also identify your unique fears. What are your mooring lines? By identifying them early, you can focus on how to over come them so that when an opportunity presents itself, you’ll be ready and prepared to make the decision and move forward. Secondly, you’ll need to surround yourself with a team of professionals and take advice only from those who have done or achieved what you want to achieve. Finally, take action and stick to a plan that addresses and manages these fears.

Did you know?

• It takes more time to become a qualified hairdresser than to give advice as a financial planner, real estate agent or mortgage broker? (We’ve got nothing against hairdressers by the way!)

• Very few stockbrokers and real estate agents invest in the shares or location they recommend you invest in?

• Most financial journalists have very little financial training or real world investment experience, yet they are happy to comment on the market, influencing decisions of thousands of people?

• Many people invest off ‘hot tips’ – hot tips from poor people not rich people?

Developing a plan for your future

‘Fail to plan and plan to fail’ so the saying goes.