News & Updates

There are many questions and concerns to address when the time comes to retire. We spend a life planning. Generally speaking, when you are young you are planning on your education. As you get older the next plan is about career, then it progresses to planning holidays, family a home etc. We spend a lifetime of working and adding things into our lives. What happens when we come to the point where considering ending work becomes important. Can we afford to live without the income we get from working? A couple of things to consider. How do I fund my retirement. Do I downsize and if I do, what do I do with my belongings? Is Independent living an option or do I need to investigate retirement communities.

When it comes to funding retirement, there can be an overwhelming focus on superannuation. In fact, based on an analysis of ABS data by the Grattan Institute, superannuation only currently accounts for 15% of the wealth held by households. The family home is still the most dominant asset, as illustrated the chart below, with superannuation poised to overtake only if significant growth is maintained over the coming decades.

In addition, there are limits to how much the community can afford superannuation in its current form and there are clear risks to focussing too heavily on super as the "only" wealth vehicle - including the tendency of politicians to "change the rules".

These comments are simply made to reinforce how important it is for individuals to focus on managing and accruing wealth across all the various asset classes. This includes the appropriate management of your family home, one of the most tax effective investments available. While it is not a liquid investment, nor income earning in the absence of renting part of the property or generating funds from a reverse mortgage, it provides very tangible financial security and reduced living costs if fully owned on retirement.

What sort of lump sum is required to support these income streams above? ASFA estimates the lump sum needed to support a comfortable lifestyle for a couple is $690,000 (or $595,000 for a single person) assuming access to a partial age pension. These are figures as at March 2023.

We think these amounts are inadequate, particularly if you conservatively assume that access to an age pension will become more restricted over time, and the lump sum required to support a comfortable lifestyle is significantly above the current average superannuation balance at retirement.

Below we make a few modest comments of our own about any attempt to calculate how much retirement income you will require:

•    Obviously, the longer an individual spends in the workforce, the shorter the retirement duration they need to finance and the higher their income. We are big proponents of individuals working as long as possible consistent with their own health, well-being, and preferences - gradually winding down their workforce involvement and "easing" into retirement.
 
•    The "monster in the woodpile" is the level of uncertainty about a range of matters - including longevity, investment returns and costs. We look at retirement income in more detail on the website, but as big a problem as ensuring that you have enough money for your retirement is the problem of retirees actually "over saving" during retirement. Retirees often don't enjoy themselves because of concerns that they will "outlive" their capital and because they want to ensure that they "always have enough" to meet any eventuality, and
 
•    We are certainly going to see the Government further restrict or cap the amount that can be invested in superannuation. Quite legitimately, the focus of superannuation should be to support retirement only, not tax minimisation or family wealth transfers. Consequently, any planning for retirement will need to extend beyond just superannuation for many people. The question is not just whether you have sufficient superannuation, but adequate supporting funds and investments, whatever form they may take.

In general terms, and particularly for people reading this website who intend to be self-funded retirees, we feel more comfortable with individuals planning to have an initial superannuation income of about 60% - 65% of pre-retirement income. This is the target figure often quoted by financial planners, who have a personal stake in increasing "investments under management", but it nevertheless seems a target which better reflects individual circumstances - subject to some commonsense boundaries.

Downsizing, do I or don’t I? 
Everyone thinks that downsizing is a clever idea. It frees up housing which has grown too big and costly for retirees to maintain and allows them to access some of their capital and more fully enjoy their retirement. So, why isn't it happening more often?

Let's look at some figures below, and as usual they are based on us making the following, hopefully reasonable, assumptions:

•    You want to downsize into a smaller property and generate a reasonable amount of cash to make the process worthwhile and provide better living standards in retirement. The target is to move into a smaller residence priced at 70% of the value of your present house - your present house is assumed to be worth $1 million dollars in all capital cities, apart from Sydney and Melbourne, where the assumption is $1.5 million.

•    We assume that the agent's commission on sale will be 2% in NSW, VIC, SA, TAS and ACT; 2.5% in WA, QLD and NT based on market information. Marketing costs vary, but we assume $7,000 in NSW and Victoria, $6,000 in the rest. We also assume the cost of removals at $4000.

•    We assume that neither member of the couple is eligible for a pension, and therefore stamp duty concessions.

The major issue in the analysis is whether you can find attractive accommodation at 70% of your sale value, in the same broad locale. Currently, we believe that this type of accommodation is being priced at a substantial premium to the market, particularly if it is new, and this may totally eradicate any financial incentive to downsize - unless you are willing to consider moving outside the major urban areas.

What about moving into a retirement home?
According to the PwC/Property Council Retirement Census of November 2018, the cost of an "average two-bedroom ILU (independent living unit)" was 64% of the median house price across Australia. That is broadly consistent with the figures with the figures we have used above, but the Census also notes that, "ILUs in newer villages are generally priced closer to the postcode median house price". So, we have a slightly extraordinary position, as we see it, of new two-bedroom retirement units costing as much or more than average houses in the same locale.

So, moving from your house to retirement home may in practice not generate any net funds and, importantly, the average age on entry to a retirement village is mid 70's - not "over 55" as much of the marketing bump would have you believe - see the above Census report.

Retirement home operators often highlight in their marketing material that moving into a Village, because you will be occupying your property on a license or lease basis, does not give rise to stamp duty. That is entirely correct, but as you can see from the above tables, whilst stamp duty is an important cost component, it should not be the only consideration.

You also need to consider that most retirement home contracts will provide for deferred fees that will constitute between 30% and 40% of your purchase price after six or seven years of accommodation. Therefore, if you purchase a unit for $700,000 initially, and need to move into aged care facilities after seven or more years, you may only have capital of $455k to fund your refundable accommodation deposit (RAD).

That may not be adequate for a couple, although we think RADs actually overstate the amount of capital you need to keep available. At least where you are occupying your own home you are not seeing your capital eroded, and there is a greater prospect of your keeping pace with increases in aged care fees and accommodation deposits which appear highly leveraged to real estate prices and costs.

It is still not entirely clear whether provisions which allow persons aged over 65 to make a "downsizing contribution" to superannuation of up to $300,000 on or after July 1, 2018, and available to individuals aged over 60 from 1 July, 2022, have provided much new impetus. We think that it may be attractive for individuals and couples who are already in a good asset position and unlikely to qualify for an Age pension - otherwise the release of capital, if it counts for the Assets test, may be unattractive.

If you would like to arrange professional advice in relation to the above matters, please complete the Inquiry form below providing details and you will be contacted accordingly. You will receive a fee quotation in advance of any advice or services being provided.

What do I do with my belongings?
If we are downsizing our homes or moving into a retirement village then the question is what do, we do with a lifetime worth of belongings. Some of these belongings like clothes etc will be taken with you. There are other things that you do not want to let go, or you may want time to go through to see what you want to keep or let go. You need time and space to do this. Self storage can help! 

When downsizing or moving into a retirement village, many people will place their belongings in a storage space. Use the space to keep your goods long term or use it as a space where you can go through the items you have to see what will be kept or given away / disposed of. 

Kennards Self Storage has easy access individual storage spaces that are accessible 24 hours a day and there are over 90 centres in Australia and New Zealand, so there is one close to you!!

Kennards Self Storage is all about transparency and convenience. You can see every storage size and price on our website. Simply

Log on to www.kss.com.au and you will easily find your local Kennards Self Storage.

You will also find moving boxes and storage unit prices. There are a lot of cheap storage solutions out there but ask yourself are you getting bang for your buck.

Kennards Self Storage has alarmed spaces. Back to base CCTV Monitoring and no lock in leases,
Kennards Storage prices are fair and transparent. The website has prices easily viewed for every type of size needed. Prices are simply affected by supply and demand. Renting one is as easy as clicking the keyboard a couple of times. We will even cover your insurance for the first month to the value of $30,000. We can even rent you some storage shelves for your storage unit to help you maximise the use of your space!

Kennards Self Storage, the People who Care.