7 Issues with Property In Retirement.
There are generally two main wealth creation vehicles commonly used by Australians to create wealth, shares and direct property. However, in retirement we are in favour of shares over property. Why is this?
Here are 7 issues with holding direct residential property in retirement:
Lack of Diversification: Relying solely on property as a retirement investment can result in a lack of diversification in your overall investment portfolio. Over-concentration in a single asset class, such as real estate, can increase the risk of your investment portfolio and leave you vulnerable to changes in the property market.
Illiquidity: Property is a relatively illiquid investment, which means that it may take time to sell a property and convert it into cash when needed. This can be a challenge for retirees who may require quick access to funds for unexpected expenses or emergencies.
Ongoing Expenses: Property ownership comes with various ongoing expenses, such as property taxes, insurance, maintenance, repairs, and potentially property management fees if you own rental properties. These expenses can add up and impact your cash flow in retirement, potentially reducing your overall retirement income.
Market Volatility: Property values can be subject to fluctuations based on factors such as economic conditions, location, and demand in the real estate market. A downturn in the property market could impact the value of your property and potentially reduce your retirement savings if you were planning to rely on property as a significant source of income in retirement. These price fluctuations though can also affect share prices of the great companies in the world.
Physical and Management Challenges: Property ownership also comes with physical and management challenges, such as property maintenance, dealing with tenants (if you own rental properties), and other responsibilities associated with property management. These challenges may become more burdensome in retirement when you may have less energy or desire to manage properties actively.
Rising Living Expenses: As retirees age, they may face increasing living expenses, such as healthcare costs or long-term care expenses. Relying solely on property as a retirement investment may not provide enough income to cover these rising expenses, leading to potential financial challenges.
Inheritance and Estate Planning: Property ownership can also present challenges in inheritance and estate planning, as transferring property to heirs may involve legal complexities, such as taxes and probate, which can impact your estate and beneficiaries' financial situation.
While property is great for accumulation of wealth, when it comes to a decumulation strategy, we believe clients should consider the pro’s and con’s of retaining direct property investments in retirement.
