Property vs shares: what is best for retirement?

The continuous dance of superannuation, property, shares, and other investments and how they come together to fund your lifestyle in retirement is something we work on every day with clients.

Most experts will agree there is no single approach when it comes to securing your retirement future with a specific asset class.

Instead, it is about taking a broader view of your entire financial position and working out whether you have the right emphasis on achieving the best possible result within your accepted levels of risk.

Your investment property: to sell or not to sell?

If you’re lucky enough to have an investment property, a key question as you near retirement is to sell or not to sell? There are several factors to consider when deciding to keep or sell.

If you have a property that generates sufficient income to meet all your needs, you are obviously in a great position. But most people will generally need more than one or two properties to generate enough income to get the lifestyle they want.

To improve your investment returns ahead of retirement, it could be worth selling down part of your property portfolio and putting these funds into more liquid assets such as shares or managed funds. We note however it’s important to first understand the tax implications of any property sale.

Generally, as people approach retirement, there is little or no debt on their investment properties. If you are in this position, investment properties can lose their appeal because many of the tax benefits are lost.

If you had a choice between $300,000 in property or $300,000 in a managed fund or share portfolio, the latter can provide several benefits in retirement.  For instance, you can sell shares and managed funds in smaller parcels, compared to needing to sell a whole property.

What is more, investing in shares or managed funds via your superannuation fund may provide additional tax benefits.

Adjusting your portfolio

Changes in share markets can be unsettling. And in the past few years (2020 in particular) we have seen turbulence in local and international share markets.

While history has demonstrated share markets inevitably bounce back, many investors look to the (perceived) safety of cash or property to avoid the daily fluctuations of share prices.

It is essential to take a step back and think long term though, even if you are already in retirement.

And remember: it helps to have an investment strategy that’s going to deliver the returns you need to provide a comfortable life over 20 to 30 years (not the next 5 years).

While cash is seen by many as a safe option, the fact is, cash investments are barely generating returns above inflation. There is a real risk of running out of money in retirement if you’re parked in cash the whole time.

As for property, we have seen some Australian house prices stagnate or even slip over the past year. It’s not the bulletproof strategy that many investors think it is.

Ultimately, it all comes down to your objectives and ability to tolerate short-term volatility.

The role of good advice

Getting good advice is key to working through the property versus shares conundrum.

While many people prefer to invest themselves, talking to a financial advice professional can make a difference, particularly when it comes to exploring different strategies and scenarios or identifying new opportunities.

If you’d like to discuss your investments and retirement plan feel free to speak with an Adviser from Muirfield on (03) 5224 2700.

Photo by Tierra Mallorca on Unsplash