Do you see yourself driving a reasonable car, wearing nice clothes, drinking wine and holidaying at least once a year when you retire? If the answer is yes, then you’re envisioning what’s known as a how to ‘comfortably retire’ and depreciation can help you achieve this says, Bradley Beer, CEO of BMT Tax Depreciation.
According to the Retirement Standard Report released by the Association of Super Funds of Australia, a comfortable retirement enables an older, healthy retiree to be involved in a range of leisure activities and to have a good standard of living through the purchase of items like household goods and private health insurance. A comfortable retiree is also someone who owns their own home outright.
So how much do you need to retire comfortably?
Comfortable retirement
The Retirement Standard Report outlines budgets for modest and comfortable lifestyles for two separate age groups – retirees aged around 65 and retirees aged around 85. It also breaks the budgets down into singles and couples.
If you’re a single retiree aged around 65, you’ll need $43,255 per year to retire comfortably or $27,646 to live modestly. If you’re aged around 85, you’ll need $41,245 per year to have a comfortable retirement or $26,186 to live modestly.
Couples looking to live comfortably in retirement will need $61,061 per year if aged around 65 or $57,088 if aged around 85. To live modestly, the budgets drop to $39,848 and $37,403 respectively.
Ensure you retire comfortably
There are several ways to secure a comfortable retirement. It’s important to first set realistic retirement goals and carefully plan how much money you are likely to spend each year. Assess your current savings and consider how you can save more for your retirement.
Depreciation deductions can help property investors get closer to securing a comfortable retirement.
Property depreciation is generally the second biggest tax deduction after interest, though it’s often missed by investors. This is because it’s a non-cash deduction, meaning you don’t have to spend money to be eligible to claim it.
Any property which generates income may be eligible for thousands of dollars in depreciation deductions.
Depreciation deductions fall into two categories:
- Capital works deductions (division 43)
- Plant and equipment depreciation (division 40)
Capital works refers to the deductions available for the building’s structure and items considered to be permanently fixed to the property such as kitchen cupboards, doors and sinks. Residential homes in which construction commenced after 15th September 1987 and commercial properties in which construction commenced after 20th July 1982 are eligible for the capital works deductions.
Plant and equipment assets refer to items which are easily removable from the property such as carpet, blinds and hot water systems. These items have a limited effective life as set by the Australian Taxation Office and can generally be depreciated over time.
It’s important to be aware of restrictions to claiming depreciation on previously used plant and equipment found in second-hand residential properties. Head to the BMT Insider website and read the article on plant and equipment deductions and legislation for more.
By claiming depreciation, investors can reduce their taxable income and improve the costs of holding a property. The additional savings depreciation deductions provide can help investors to pay off their loan faster, pay for expenses such as regular repairs and maintenance or even help them to save to complete renovations or build their existing investment portfolio. Each of these scenarios can help an investor to improve their chances of achieving a comfortable retirement.
Boost your cash flow
A BMT Tax Depreciation Schedule ensures property investors don’t miss out on the hidden cash flow available for their properties.
During the 2017/2018 financial year, BMT found residential property investors an average first year deduction of $8,212.
Reducing your taxable income by this amount in the first year alone will boost your cashflow, meaning you can save more for your retirement.
Read more articles about retirement: Five key reasons to consider equity release
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