How REITs Can Help You to Enjoy a Comfortable Retirement

·4-min read
REIT Graphic
REIT Graphic

Everybody hopes for a comfortable retirement.

However, the truth is that many fail to adequately plan for this phase of their life, leading to disappointments when they fall short of what is needed.

A survey in August last year by Endowus Singapore found that one in three Singaporeans are worried about retirement planning.

Yet, 45% have yet to start planning.

Another earlier survey by Fullerton Fund Management showed that, on average, Singaporeans estimated they will need S$1.4 million for a desirable retirement.

Meanwhile, by July 1 this year, the retirement age will be raised to 63 and the re-employment age to 68, to eventually raise these two ages to 65 and 70, respectively.

With these changes, more people will find themselves working for longer.

It is normal to feel worried about whether you can retire comfortably in light of all these news.

By investing in REITs, you stand a good chance of being able to do so.

Here’s how you can make use of REITs to guarantee a secure retirement for yourself.

A vehicle for passive income

REITs are perfectly suited as a source of consistent dividends due to the way they are structured.

This asset class consists of properties that are bundled together and then traded as units on a stock exchange.

At least 90% of their profits need to be paid out as distributions for REITs to enjoy tax exemptions.

This fact makes them suitable for income-seeking investors who rely on a steady stream of cash inflow.

Not only are REITs easily bought and sold on an exchange, but they also double up as a dependable source of passive income.

This flow of passive income will stand you in good stead as you plan for your retirement.

By including REITs in your investment portfolio, you can slowly and steadily build up your passive income stream.

Beating inflation

Another attractive feature of REITs is their ability to provide a distribution yield that beats inflation.

Recent headlines have been filled with news of inflation rearing its ugly head as interest rates around the world have remained low for the past three years.

The US is seeing prices hit a four-decade high while in Singapore, inflation rose to 3.8% last November.

Amid the inflationary environment, REITs such as Mapletree Industrial Trust (SGX: ME8U) and Frasers Logistics & Commercial Trust (SGX: BUOU) are offering distribution yields of 5.3% (annualised) and 5.2%, respectively.

By owning such REITs, you can safely beat the long-term inflation rate of between 2% to 3%.

Increasing your cash flow

The great news is that REITs can also increase their distribution payouts over time.

As a REIT acquires more properties or enjoys positive rental reversion, it will boost its rental revenue and distributable income.

Distribution per unit (DPU) should also head up in tandem with the increases in these financial metrics.

Take Parkway Life REIT (SGX: C2PU) for instance.

The healthcare-focused REIT paid out a DPU of S$0.0683 back in its fiscal year 2008 (FY2008).

Fast forward to FY2020, and its DPU has risen to S$0.1379.

The REIT has increased its core DPU every single year since FY2008, and a unitholder who owns the same number of units throughout this period will enjoy higher cash inflows.

Mapletree Logistics Trust (SGX: M44U), which owns a diversified portfolio of 163 logistics properties in eight countries as of 30 September 2021, has also consistently raised its DPU since its fiscal year 2016.

Get Smart: Start compounding your wealth now

REITs are an attractive vehicle for growing your wealth and generating a steady stream of passive income.

The attributes described above make REITs an ideal addition to your investment portfolio.

What’s more, you can make use of their distributions to further compound your wealth.

By reinvesting your distributions to buy additional units in well-managed REITs, you can give an extra boost to your dividend flow.

So don’t hesitate.

Start your investment journey now by including REITs in them.

It’s a decision that can ensure you will enjoy a comfortable and secure retirement.

What do real estate, Malaysia, Asia’s retail and healthcare have in common? They are a rich source of dividends! And in 2022, these 4 sectors look to be full of companies with healthy cash flows and dividends. If you want to own some of these stocks yourself, then grab a copy of our latest special report. Click here to download it for FREE.

Disclaimer: Royston Yang owns shares of Mapletree Industrial Trust and Frasers Logistics & Commercial Trust.

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