Retirement

With the current rate of economic development, maintaining a certain lifestyle especially through retirement is getting more difficult with a single source of income. The need for a Secondary Income Stream and preferably even during retirement is more pressing. A quick and dirty way to gauge how much is required for retirement is:

>

 

Assuming that you are 40 years old now and your monthly expenses (for you and your spouse) is $4,000 per month. Your retirement fund at the start of your retirement should at least be $2,000 x 12 x 25 x 2 = $1,200,000!

And of course if you are looking for a more flamboyant golden age, for example, travel round the world, indulge in expensive hobbies like golf or bonsai, the amount required will escalate!

This is the exact reason why there is a need for serious retirement planning! Many of us are either not aware of what is installed at our last lap or choose to ignore it. If you really sit down and work the numbers with your financial planner, it is very likely that you are going to lose some sleep over it! Hence, it is important to create a secondary income stream and ideally, have this stream of income continue during retirement.

Real estate investment is a good vehicle for retirement as they are good wealth protection vehicles with possibility of capital gains and at the same time able to generate regular income through rental!

How you can use property as a Retirement tool?

Here we will illustrates an example of how a person at age 40years old can make use of the purchase of property for to finance his retirement.

Some assumptions we put in:

  • The current flat that he is staying in is fully paid
  • Purchase a $1M property and rent it out
  • Taking a 80% loan on the purchase
  • Interest rate on the loan is 3%, 20 years tenure

The initial downpayment for the purchase will be $200k .

Here are the calculations for the 1st property he buys to rent it out.

Property 1

Purchase price

$1,000,000

Loan Tenure

20

Loan

$800,000

Interest rate

3%

Installment

($4,436.78)

Rental inflation

3%

Initial rental yield

4%

Assuming the property has an initial rental yield of 4% and a inflation of 3% on the rental he is getting, over the years this is how the property instalment and rental projections will look like.

Age Years Property 1 Instalment Property 1 rental projections

41

1

($53,241.37)

$40,000.00

42

2

($53,241.37)

$41,200.00

43

3

($53,241.37)

$42,436.00

44

4

($53,241.37)

$43,709.08

45

5

($53,241.37)

$45,020.35

46

6

($53,241.37)

$46,370.96

47

7

($53,241.37)

$47,762.09

48

8

($53,241.37)

$49,194.95

49

9

($53,241.37)

$50,670.80

50

10

($53,241.37)

$52,190.93

51

11

($53,241.37)

$53,756.66

52

12

($53,241.37)

$55,369.35

53

13

($53,241.37)

$57,030.44

54

14

($53,241.37)

$58,741.35

55

15

($53,241.37)

$60,503.59

56

16

($53,241.37)

$62,318.70

57

17

($53,241.37)

$64,188.26

58

18

($53,241.37)

$66,113.91

59

19

($53,241.37)

$68,097.32

60

20

($53,241.37)

$70,140.24

61

21

$0.00

$72,244.45

62

22

$0.00

$74,411.78

(Illustration Table 1)

We can see that projections at the age 62 shows that the person will have an annual rental income of $74,411. This amount will be able to assist the person to finance his retirement spending.

However if he desire to have more retirement income from the rental, he may decide to buy a second property. Here is how he can do it:

Assuming he buy the second property:

  • Purchase a $500k property and rent it out
  • Taking a 80% loan on the purchase (overseas or local property)
  • Interest rate on the loan is 3%, 17 years tenure

The initial downpayment for the purchase will be $100k. Assuming that the buyer save every single dollar from the rental of the first property he bought, he would have accumulate more than 100k for this second property purchase (Illustration Table 1).

Here are the calculations for the 1st property he buys to rent it out.

Property 2

Purchase price

$500,000

Loan Tenure

17

Loan

$400,000

Interest rate

3%

Installment

($2,505.50)

Rental inflation

3%

Initial rental yield

4%

Assuming the property has an initial rental yield of 4% and a inflation of 3% on the rental he is getting, over the years this is how the property instalment and rental projections will look like for the 2 properties

Age Years Property 1 projections Property 1 rental Installment Property 2 Installment Property 2 rental projections Cash flow
41
1
($53,241.37)
$40,000.00
($13,241.37)
42
2
($53,241.37)
$41,200.00
($12,041.37)
43
3
($53,241.37)
$42,436.00
($10,805.37)
44

4

($53,241.37)

$43,709.08

($30,065.99)

$20,000.00

($19,598.28)

45

5

($53,241.37)

$45,020.35

($30,065.99)

$20,600.00

($17,687.00)

46

6

($53,241.37)

$46,370.96

($30,065.99)

$21,218.00

($15,718.39)

47

7

($53,241.37)

$47,762.09

($30,065.99)

$21,854.54

($13,690.72)

48

8

($53,241.37)

$49,194.95

($30,065.99)

$22,510.18

($11,602.22)

49

9

($53,241.37)

$50,670.80

($30,065.99)

$23,185.48

($9,451.07)

50

10

($53,241.37)

$52,190.93

($30,065.99)

$23,881.05

($7,235.38)

51

11

($53,241.37)

$53,756.66

($30,065.99)

$24,597.48

($4,953.22)

52

12

($53,241.37)

$55,369.35

($30,065.99)

$25,335.40

($2,602.60)

53

13

($53,241.37)

$57,030.44

($30,065.99)

$26,095.46

($181.46)

54

14

($53,241.37)

$58,741.35

($30,065.99)

$26,878.33

$2,312.32

55

15

($53,241.37)

$60,503.59

($30,065.99)

$27,684.68

$4,880.91

56

16

($53,241.37)

$62,318.70

($30,065.99)

$28,515.22

$7,526.56

57

17

($53,241.37)

$64,188.26

($30,065.99)

$29,370.67

$10,251.58

58

18

($53,241.37)

$66,113.91

($30,065.99)

$30,251.79

$13,058.34

59

19

($53,241.37)

$68,097.32

($30,065.99)

$31,159.35

$15,949.32

60

20

($53,241.37)

$70,140.24

($30,065.99)

$32,094.13

$18,927.02

61

21

$0.00

$72,244.45

$0.00

$33,056.95

$105,301.40

62
22
$0.00
$74,411.78
$0.00
$34,048.66
$108,460.44

We can see that projections at the age 62 shows that the person will have an annual rental income of $108,460. This amount will be able to assist the person to finance his retirement spending.

Of course the above calculation does not take into account other costs such as property management fees, taxes etc. However the application of this concept can be the starting point. In fact the actual returns can be calculated accurately. If you like to find out more, speak to us now!

Subscribe

Subscribe NOW to get the latest updates of our property news and analysis!

For a limited period only! Subscribe to get a FREE e-book by John and I-Min!

ebook