Alberto, 45, doesn’t know whether to buy property or retire at 60 – 01/24/2024 – Market

According to research by the Quinto Andar portal in conjunction with the Datafolha Institute published in 2022, 87% of Brazilians dream of having their own property. Surprisingly, respondents prioritize the purchase and payment of a property in relation to financial stability, religion, children and marriage.

Realize that having financial stability, which could be understood as something prior to retirement, is less important than having a property.

However, this is not Alberto’s preference. According to him: “My priority is to retire with money.” He prioritizes having a pension of R$15,000 a month at the latest at age 60, but he also dreams of buying another property.

Let’s understand if he would really need to choose between the two, but first let’s better introduce Alberto and his dilemma. He is an internationalist, 45 years old, married but without children.

Alberto asked a series of questions, but the main one is the dilemma he faces: “I would like to buy a property worth R$2.2 million. To do this, I don’t want to sell my rented property, as I think of it as helping with retirement. At the same time, I don’t want to lose my savings, as I have been unemployed in the past and suffered a lot due to the lack of money saved. I also don’t want to jeopardize my retirement.”

Alberto lives on rent and pays R$4,000 per month. However, he has a property worth R$650,000 and receives a rental income of R$2,800 per month from it.

He also has financial investments totaling R$2 million and declares himself a conservative investor. Let’s check his allocation and understand if it is suitable for his profile.

Half of its investments are abroad in “savings accounts” (equivalent to our savings account in Brazil). This investment yields approximately 3.5% per year.

The other half is in Brazil and is divided as follows: 65% in fixed income through bonds, funds and private pensions and 35% in multimarket and equity funds.

This is not a conservative investor’s portfolio. Having 50% in a savings account in dollars is taking the dollar risk and not being rewarded with interest. Also having 17.5% in multimarkets and shares diverges from conservatism.

Let’s understand how your portfolio should be allocated so that it reaches the goal of having a retirement income of R$15,000 per month.

For his goal to be achieved, he would need to accumulate assets of R$3.45 million by the age of 60.

In the simulations, I considered an interest rate of IPCA + 4% per year exempt from IR. This is equivalent to a gross IR interest rate of IPCA + 5.3% per year, considering inflation of 4% per year. This interest rate is currently feasible for both public bonds and CDBs and is suitable for a conservative investor.

To reach this wealth in 15 years, Alberto would need R$1.9 million currently invested in investments with a yield of IPCA + 5.3% per year gross income tax. Current applications cannot guarantee this return.

To guarantee this return, I suggest that Alberto returns with international resources to Brazil and invests all his financial assets in bonds, funds and fixed income pensions paying a rate higher than IPCA + 5.3% per year.

Only in this way will he guarantee his retirement in a conservative way. But what about the dream of the property?

This seems distant within Alberto’s financial condition. In order not to use the assets for retirement, he would have to use real estate financing.

I did a financing simulation in the largest institutions. Even at the cheapest, which was Caixa Econômica Federal (simulation below), and using the sale of his current property as a down payment, the financing does not fit into Alberto’s budget.

I considered a 15-year financing, as after the age of 60 he intends to retire and his income would fall, potentially compromising payment.

Simulation – Caixa Econômica Federal

• Prohibited: R$ 650 thousand
• Amount to be financed of fees: R$ 77.5 thousand
• Value to finance of the property: R$ 1.55 million
• Total amount to be financed: BRL 1,627,500
• Term: 180 months
• Rate (aa): 10.3%
• CET (aa): 11.46%
• 1st installment: R$ 23,161.84
• Last installment: R$ 9,115.83

The value of the financing installments is greater than 30% of your net income tax. Banks restrict financing with this characteristic. Also, he stated that he was only able to save between R$5,000 and R$12 thousand per month.

Without a doubt, it is natural to want to live in a very comfortable property. However, we must understand whether this property is within our budget.

Alberto has an income of R$27 thousand per month. Therefore, the maximum property value recommended for him would be close to R$1 million.

Therefore, the value of the property that Alberto intends to buy seems too high for his budget and could compromise his desire to retire on R$15,000 a month until he is 60 years old.

As your priority is retirement, property ownership should be postponed until income allows.

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