Opinion – Grain in Grain: In retirement, your property plays a fundamental role; find out the reason

Most people segregate their own property from their financial assets. This segregation results in consequences for your retirement planning. I explain below this consequence and how you should consider your property in financial planning for retirement.

The desire to own a property is undeniable. But contrary to popular belief, most have already managed to achieve this dream.
According to data from the Continuous National Household Sample Survey (Pnad) Continuous 2019, released in May 2020, 66.4% of homes are owned and paid off. Part of the population still dealt with financing and only 18.3% of Brazilians lived in rented properties.

I, for example, am part of this last sample of Brazilians and I have no dreams of owning a property. I will explain the reason for this in another article, because today we are going to talk to the 66.4% who already own a property and how they should consider this in their planning.

Possibly, this property represents between 30% and 90% of the investor’s equity.

The main consequence of not considering the property in your financial assets is that in the retirement account you must make a greater effort to save than what would actually be necessary. See account.

Assume you are 45 years old and want to retire at age 65 with a monthly income of R$10,000. This means that it will need to have a value close to R$ 3 million at today’s values.

If your property is worth BRL 700,000 and it represents 80% of your equity, this means that you only have BRL 175,000 in financial investments.

To reach BRL 3 million in 20 years, you will need to save BRL 6,500 a month, if we consider a real interest rate (above inflation) of 5.5% per year.

This amount can be heavy on your budget and end up discouraging you from saving because you already believe that you will not be able to reach the goal.

However, the value of the property must enter the account, because when you retire, you will probably move to a smaller house and will be able to use the property as a source of rent and income.

So, answering the question in the title of the text, consider the possibility of selling your property during your retirement in order to serve as a basis for financing this stage of your life.

I will consider in the calculations that your property will appreciate only the variation of the IPCA (official inflation index).

In this way, the monthly savings needed to reach the goal of having the desired retirement is only R$ 4,500. A 30% reduction from the previous commitment.

Note that in the calculation I assumed that the property appreciated at inflation. In fact, this has not happened in the last 10 years according to the average of the FipZap index.

Therefore, consider that your property may be pulling the profitability of your total financial equity down.

Michael Viriato is an investment advisor and founding partner of Investor’s House

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