Recent announcements by the Federal Government that the pension age may be lifted to 70 has generated a lot of controversy, however, it may encourage more Australians to invest in property in order to secure a comfortable retirement.
The current retirement age has already been lifted from 65 to 67 by the preceding Labor Government and will be implemented from 2023. Now, recent comments from Federal Treasurer about raising the pension age further and possible payment cuts have sparked more debate about whether Australians can rely on the Government funded pension to fund their retirement.
The increasing life expectancy for Australians is one of the main reasons why the Government is considering raising the pension age further. According to the Australian Bureau of Statistics, the average Australian life expectancy is now 81.85 years old. So, with more Australians living longer, the demand for the Age Pension will only continue to increase in the years to come.
With the amount of Government help now being limited for retirees, Australians need to consider how they can support themselves once they stop working. Property investing has become a popular option for a number of people as they will have an asset that will continue to increase in value and can also provide a passive income during their retirement years.
Research shows that many investors are taking advantage of the strong property market and historically low interest rates and getting their foot in the door. According to the Australian Bureau of Statistics, figures for December show investors take up a large portion of the property market with investors making up 36% of all home loans issued in December.
However, purchasing any property in any location will not guarantee success. Investors don’t only need to research what the current market is like, they also need to look at where it is heading. It is important to consider whether the demand for housing in the area is going to grow or not as it will affect the rental return. According to research by RP Data, there were 582 suburbs throughout Australia that have a gross rental yield of 5.5% or more. Visit www.rpdata.com for more information.
Financing the property will also affect rental return. Before applying for an investment home loan, investors will need to look at what their overall goals are. Do you want capital returns or high renal yields? What are your investment timeframes? Do you want to repay the loan as quickly as possible or would you prefer smaller, consistent repayments over a longer period? Make sure you speak with your lender and financial adviser before making any investment decisions.
With the retirement age rising, working for longer is going to be the normal for many Australians. Many will be looking at investments that will continue provide a passive income after they finish working.