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Checklist for including property in a retirement portfolio

Checklist for including property in a retirement portfolio

If you are thinking about adding property to your retirement portfolio, you may wish to consider the following:

Do I have the time, energy and inclination?

If you are willing to put the time and energy into property management, the long-term rewards can be substantial. On the other hand, if you have never managed property before or do not work in a property related industry, your lack of practical experience and know-how can leave you vulnerable. If you do proceed, you may wish to start with a smaller property, and a lower level of borrowing. You can always gear it up later on if property investment agrees with you.

Does property suit my time frame?

Because transaction costs are relatively high, and leveraged property prices can fluctuate significantly over the short term, property is usually a ten or more year investment. If you are lucky enough to enjoy a short-term windfall gain, terrific, but it should not be counted on. New Zealanders purchasing a property with less than ten years to go before retirement and little or no alternative sources of savings may therefore be taking a gamble.

Does my borrowing match my risk profile?

If you wish to borrow, ensure your borrowing matches your risk profile and age. A conservative couple in their late fifties may wish to use little or no leverage, or have their mortgage payments fully covered by the rent (after taking rental expenses and tenant vacancy rates into account). In contrast, an individual in their early forties with an aggressive risk profile and a stable income may wish to borrow a higher portion of the purchase price.

Are my retirement savings diversified?

It may be unrealistic to assume the average New Zealand family will accumulate a diversified portfolio of property assets to mitigate the risk of any one property performing poorly; 55.6% of clients held one investment property. In the absence of any other forms of savings, clients’ retirements may become dependent on the entry and exit and intermediate fortunes of a single property decision. It should not. There is no reason why all clients’ savings should sit in the property basket. As you age, the importance of holding a growing portion of your wealth in easily accessible assets, such as bonds, shares, or a managed portfolio, grows. A useful rule of thumb for less liquid, long-term assets is to ensure that they make up no more than 100% less your age (for example 100 – 60 years old = 40%) of your retirement savings. For 43.3% of clients, property made up between 51% and 100% of their savings; for 21.7% of clients it made up between 21% and 50%, and for 34.9% it accounted for 20% or less.


Given that managed portfolios and property are both capable of growing your wealth over time, it is logical to consider whether property should be included in your retirement portfolio. There is even evidence to suggest that adding property to a managed portfolio of growth orientated assets such as shares helps dampen the volatility of returns. There is however nothing to suggest you have to own property to accumulate wealth for your retirement – there are plenty of alternatives available.
Whether property suits you will primarily depend on your personal circumstances and, in particular, whether you have the inclination and skill to be a property manager. If you do invest in property, following the simple checklist above should help you mitigate the risks and maximise the potential rewards.2

1 Source: NZ Funds calculations, Corelogic, Statistics New Zealand, Reserve Bank of New Zealand.
2 For clients who are considering a property investment we recommend Property Investment: A Strategy for Success, Martin Hawes and The Truth about Property Investment, Duncan Balmer, as unbiased practical guides to property investing for New Zealanders.

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