Advice and Opinion

Diversifying your retirement plan

In planning for retirement, it’s best to diversify your retirement portfolio, it shouldn’t just be one commodity such as only property, or shares or cash, says Michael Bauer, general manager of the estate agency IHPC. 

“But what it definitely starts with is owning your own home,” he said. “If you manage to pay off your home before or by the time you retire, you will save on the monthly expense of paying for the roof over your head. In rand value, for example, one would end up paying around R15 000 per month (not adjusted for inflation) if you were to rent the equivalent home after retiring. Working out what one would need to get from a retirement package or pension would be around R50 000 per month to be able to live comfortably.”

When the basics are in place, the next step would be to go to a financial advisor and work out what will be needed in the future. Property has the advantage over any other investment, however, of being able to be borrowed against to buy the next property and over a period of ten years, and build up a portfolio of rental properties, said Bauer.

The types of properties to look for would be the smaller units where you could cover the bond every month (or almost cover it), which are high in demand, particularly in sectional title developments. A typical two bedroom at Bardale Village, for example, would rent out for R3 900 per month and the purchase price would be R464 000 making the bond ± R4 467 per month.

“These properties will bring in rent every month as an income, and between saving on your own rent every month, earning the rent and perhaps the dividends from some shares, you should be in a safe financial situation,” he said.

The properties could then also be sold off one at a time to cover another investment, if a cash injection is needed or if the timing is right for investing in bonds or shares, said Bauer.

Part of the financial strategy should always be property because it is more stable than most other investments.

“Warren Buffett once said that your investments should be 75% in shares, 15% in bonds and the rest in property and cash. While his advice seems unfeasible because the normal person might have the majority of his money in his property, it is a good principle even though it sounds impossible to achieve. If a person takes 10% of his salary every month from a young age and puts it away in shares or unit trusts, he will have a healthy lump sum by his retirement age,” said Bauer. “The key is to start as early as possible and to have the self-discipline not to touch one’s savings.”

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