When my son asked my advice on career pathways, I told him two things. The first was to pick a profession that provides challenging opportunities to learn and develop. The second was to find a profession with a steady income and high earning potential.
Now this may sound like shallow advice, as money isn’t everything. However, I emphasised the point as I wanted him to think about his career finish line before he made his start. Said differently, I wanted financial security to be his focus, regardless of what happens during his career.
While I stand by my advice, I’ve built on it over the years. A strong steady income is good. Knowing how to efficiently utilise it is even better.
The Costs Don’t Stop During retirement
When you’re working, you would typically have to incur living expenses. This could be rent, food, travel, healthcare, tuition, or even discretionary costs. Your life stage will influence your cost burden. For instance, you would likely incur more expenses as a young family compared to if you were single and exiting university.
Your steady income manages these costs, even if it’s inconvenient to do so. However, most of these costs don’t retire when you do. If your lifestyle choices mean that you have very little savings during your career, you will quickly find yourself in hot water during retirement.
Moreover, most people fail to grasp that certain costs increase during retirement. Healthcare is a prime example. As you age, you are naturally susceptible to more ailments and medical issues. Healthcare providers are mindful of this and adjust your premiums accordingly. The same can be said about life insurance policies. The point is that, even if you make an effort to reduce your daily spend, you may still be exposed to cost creep during retirement.
Why Owning Assets (Such as Real Estate) Are critical in Retirement
Your steady income is meant for many things. These include providing you opportunities to grow and develop, tend to your family needs, as well as manage daily lifestyle pressures. However, this steady income is also meant for building a future for you and your loved ones.
This can be done by purchasing and accumulating assets, such as real estate. Owning property gives you options well beyond a steady income, such as equity value, greater borrowing capacity, and a potential future passive income stream.
Another key reason for real estate ownership is that it is a great future cash flow source. As I mentioned in my earlier post, you are able to borrow against your home equity value. This can be a sound strategy, provided the return on your home exceeds the interest that you pay. This ability to borrow gives you a greater chance to manage the retirement cost creep.
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If you’re able to secure a steady income with advancement opportunities, then you’ve made the correct first step for your future. However, a steady income will not get you through retirement. What will get you through retirement is knowing what to do with that income.
The content outlined above was written, edited and published by the Lost Realtor. The author has over 20 years or real estate sales and investing experience in the Australian property market. He has held senior positions in Australian building companies, including being the General Manager of the residential sales division of Collier Homes. His qualifications include a Bachelor of Commerce degree and a Graduate Diploma in Building and Construction Law.