The government-backed Age pension has been the bedrock of retirement planning in our country for decades. By March 2023, 63% of Australians aged 65 and over relied on income support, with 92% of them receiving the Age Pension.
But is this pension enough?
We live in a world where living costs are skyrocketing, and economic uncertainty is at its peak, which makes it challenging for most Aussies to survive on just the government-sponsored retirement pension plan. Although it promises a secure income for your retired life, it’s not enough for comfortable living in your golden years.
Let’s break this down for you.
5 Reasons You Should Not Relying on a Pension Plan
While a pension plan does offer a sense of security, depending solely on it is not a good idea.
Here’s why:
1. It’s Not Enough
By the time you retire, you are used to a certain lifestyle, which requires a steady income when you plan to retire. That’s going to be an ordeal when you are living on nothing but a government-backed retirement pension plan.
The current maximum government-age pension for couples is $40,004 a year and $26,535 a year for single seniors. Can you live on this amount of money?
If you have been working hard all your life, then this retirement pension plan will not sustain your current standard of living. You will need to consider saving for retirement to maintain your current standard of living.
That said, your superannuation funds may not be enough. Plus, there are conditions that you must meet to access your superannuation. You must be permanently retired at 55 to 60 (depending on the year you were born) to access your super with extra conditions attached. Once you are 65, you may access your super without being retired, but there will be conditions attached.
2. It Fails to Keep Up with Inflation
Although the government-back pension plan for retirement includes adjustments to cope with inflation, they often fail to keep pace with the actual increase in living costs. That means the real value of your pension payments can go down over time, forcing you to lower your standard of living. When your regular expenses grow faster than inflation adjustments, you may find it hard to afford even basic needs.
3. It’s Susceptible to Political and Economic Instability
The Australian government controls the pension plan for retirement. In other words, it may change when the economic and political winds shift. It’s not unheard of for budget cuts or economic downturns to lead to shutting down a government scheme altogether. This could mean you get a less-than-expected pension when the next government comes into power.
4. It Has Limited Flexibility
Another significant drawback of this retirement plan is the lack of flexibility. Unlike your savings or investments, where you have control over how and when you use your funds, the age pension provides a fixed amount determined by the government.
You cannot adjust your retirement income based on personal needs or life changes. This makes relying on the Age pension plan risky. It leaves you with no room to provide for unexpected expenses.
5. We Are Living Longer
Australians are living longer, which means you will have to rely on this pension plan for retirement a lot longer than you think. But as you age, your healthcare and lifestyle needs may change, requiring you to manage your funds more carefully. The meagre pension income may not be enough to support your changing needs. This might force you to rely on other sources of support, such as family or social services.
While the government-backed retirement pension plan offers security, it’s not enough to live comfortably. Other options like your super may not be easily accessible or have limitations in supporting your lifestyle after retirement. But if you want access to your finances when you need them for retirement, which is not dependent on your age, consider investing in property.
Why Property Investment Makes Sense for Your Retirement Plan
Investing in properties other than the house where you live currently is an excellent way to secure income for your retirement. It offers several benefits, such as:
1. Steady Income Stream
One of the most notable advantages of property investment is that it provides a steady income in your golden years. If you rent your property, you can get a fixed monthly income, which can increase annually. Conversely, selling your property can help you arrange funds for unexpected expenses.
2. Capital Growth
Real estate appreciates over time. The Australian property market saw its value rise for the sixth straight quarter, with Perth house prices increasing by 6.6%, reaching $852,240 for the June quarter of 2024. This growth provides a financial cushion for your future needs.
3. Inflation Adjustment
When inflation increases, the cost of living also goes up. But, unlike the government-backed pension plan, your property investments can adjust to the economic changes quickly and efficiently. With the right rental appraisal, you might be able to supplement your retirement income with a steady cash flow from your property. This can help you live more comfortably after your retirement.
4. Tax Benefits
Property investment may also offer tax benefits, depending on where, how, and when you invested. For example, if you own the property for more than 12 months and you’re an Australian resident, you may be entitled to a 50% discount of the capital gains tax. This typically makes property investment a more desirable option for your retirement pension plan.
How My Money House Can Help You Invest in Property
Property investment can be a lucrative option to build your wealth if you invest with the help of an expert like My Money House. We have a team of property specialists that can help you to do the following:
- Figure out the right way to invest in property.
- Understand the financial outlay required, your weekly contribution or weekly income to be received.
- Identify the hot spots to invest in by using a property matrix formula.
- Build an investment property using a turn-key solution.
- Find the best finance.
- Look for and manage your tenants.
Start Your Property Investment Today
Real estate investment can provide you with a steady retirement income. But if you aren’t sure where or how to invest in property, we are here to help. Our experts listen to your requirements, assess your current finances, and recommend an investment plan tailored to your goals and budget. This helps you put your best foot forward while securing your retirement.
For more information about how to invest in property, contact our team today.
