$50,000 (after tax) for hubby and I just won't cut it. I want to retire with some money to spare, not to stick to a strict budget. I may as well keep working if I'm going to do that!!! Doesn't sound like much of a retirement at all. I want to travel extensively and go out for lunch/dinner whenever I want. Yep I could live on less, but why would I? Isn't that the point of all this investing, to achieve our dreams? not just to live surely??
How much do you need to live every year?
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Agreed that is the ultimate goal. Why bother otherwise? Might as well get a Centrelink pension and be a leech on society
Agree...
Might it be difficult to achieve ? yes, sure, everything worthwhile is and this is a pretty big one....
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agreed - Australia is better than malaysia and singapore living wise.
[ Bolding my emphasis ]
Here to just answer that one simple question you posed. It's called reality vs "the dream".
Fully agree that it's wonderful to dream, dream as big as you like, but not everyone is going to end up a Rinehart or a Packer or a Forrest. Most, infact the massive majority, could I be so bold as to venture over 99% of those whom start, are going to have to compromise their dreams and settle for something less as time ticks by.
The big deal didn't quite come off as expected, the rental growth rates weren't consistently chugging up by 5% pa, the capital growth rates didn't consistently keep going up by 8% pa, and so the 'projection spreadsheets' smeared out over 40 years or more get tempered with reality sometimes when the opposing party to the contract you've entered into happens to drive a better deal than you'd bargained for.....be they fellow investors, your Tenants or some savvy purchaser.
There will come a time, perhaps in your 60's, lucky if it's your 50's and onya if it's in your 40's, when you'll have done enough and you'll have the freedom to choose to either ;
(a) quit the job forever and do sort of what you wish when you sort of wish to do it, albeit with a slightly curtailed expense, or
(b) keep butting your head against that job brick wall for another decade or two, doing exactly as the boss demands until you reach your dream.
From experience, I can say that when starting out, option (b) is all the rage, no need to compromise cos uyou are so far off achieving the goal it doesn't really matter....but as you get closer to being financially independent, option (a) really starts to take a hold and the temptation to slice through those shackles becomes an all consuming fixation until the day you do.
Not many people have the 'won't power' and capacity to wield a large enough axe to get through the job shackles, yet patiently sit there and not use it. The temptation to break free is overwhelming after a while. It is intoxicatingly smug to sit there with the capacity to do so, yet hide it from your boss and boss' boss, solely for the purpose of getting to a point where the Banks wouldn't chuck a wobbly when they found out you'd already left the safety of your job's income.
I'm yet to personally meet any very wealthy investors who are quite content to sit in some menial job and cruise along. The only person I've read about is that forklift driver in Jan's 101 stories book.
Nice post dazz.
There are few bigger drivers of retirement income than how long you work.
Assumptions:
Invest 25k per annum into super after tax (this is significantly more for most than compulsory super...)
Return avg. 6.5% per annum say a bond fund something safe.
Inflation rate over 40 years 4% p.a.
Retire after 40 years you retire with 4.67million, in todays dollars = $975,000.00
Retire after 30 years you retire with 2.30 million, in todays dollars = $709,000.00
Neither sees you particularly well off which is I suppose why most here look for better strategies than savings accounts / bond funds.
Which is the other driver of retirement income.
Its all about the return as well when you talk in 30 - 40 year timeframes. Beef that up to 10% after tax return and you end up after 40 years with 12million dollars and 2.5million in todays dollars which is comfortable enough for most I imagine.
There are few bigger drivers of retirement income than how long you work.
Assumptions:
Invest 25k per annum into super after tax (this is significantly more for most than compulsory super...)
Return avg. 6.5% per annum say a bond fund something safe.
Inflation rate over 40 years 4% p.a.
Retire after 40 years you retire with 4.67million, in todays dollars = $975,000.00
Retire after 30 years you retire with 2.30 million, in todays dollars = $709,000.00
Neither sees you particularly well off which is I suppose why most here look for better strategies than savings accounts / bond funds.
Which is the other driver of retirement income.
Its all about the return as well when you talk in 30 - 40 year timeframes. Beef that up to 10% after tax return and you end up after 40 years with 12million dollars and 2.5million in todays dollars which is comfortable enough for most I imagine.
I'd say $70K after tax. But it's doable on $50K. Try spending $1K a week now consistently on "life style". It's a fair bit of money.
Question? Why can't you do all these things now "travel extensively and go out for lunch/dinner whenever I want. ".
Travel can be really cheap as well. Got a nice 7 day P&O cruise soon, for $500/head.
Like Dazz says. Dreams vs reality. Some may want to work to 60 to accumulate more wealth. Some are happy to retire at 42 with a comfortable retirement.
That's nonsense. There are many drivers of retirement income. The least of which is how long you work. Very few people who "work" for 40yrs, end up with a comfortable retirement (most probably end up on the pension).
Investment is the biggest driver, as well as building multiple streams of income.
As for super, pfff. What a damn waste. The problem is it's locked in until 65. Too bad if you want to retire at 42!!.
Goond thing perhaps that an understanding of written English is not a strong driver of your retirement income?
Few bigger drivers does not mean the only driver, nor does it mean the biggest for that matter? Though I guess it would be close to the biggest irrespective of your response.
Super is important because without it your after tax inveestment income is hammered by some 40%! A 10% nett return ends up being 6% after tax. 6.5% ends up being roughly in line with inflation. It is 40% worse off for most tax payers. Ludicrous.
I agree though on one thing; super has a regulatory risk attached, and one I have not taken personally as I am a loooong way from retirement.
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You should qualify this statement with "if your income is greater than $x". If somebody needs $50k to live off then they will not be taxed at 40%
Indeed this is true.
I was going to make a quip about how people should know what marginal rate of tax they pay is, but then realised I really do not know what my own is? I have for some years worked it out based on 40c thinking that is near enough; i.e. do I really want that new laptop? hmmm its $2000.00 oh hang on no its actually $1200.00 if I take into account the $800.00 of tax returned should I buy it?
Anyway here is the current rates for anyone who wants a refresher:
Tax rates 2010-11
0 - $6,000
Nil
$6,001 - $37,000
15c for each $1 over $6,000
$37,001 - $80,000
$4,650 plus 30c for each $1 over $37,000
$80,001 - $180,000
$17,550 plus 37c for each $1 over $80,000
$180,001 and over
$54,550 plus 45c for each $1 over $180,000
I guess the philosophy around super applies to IP's negatively geared also. If there ever was a compelling argument for buying a negatively geared IP's or indeed any asset that is tied to inflation but with low yields likely to nett you a loss each year with the windfall in several years time taxed at a lower marginal rate (like forestry;
) it is for those who pay a high marginal rate of tax. you pay a low marginal rate stick with stuff that just pays you an annual dividend or good rent above holding costs.
Super is the investment scheme set up to help those with no investments, or invetsment skill, to provide for their own retirement and release the burden on the Govt.
It has to be tax effective in order to encourage employees to bother with employee contributions - and many still don't. None of my staff do, and they all need the dough and will need it at retirement.
For the active investor and those with some investment knowledge and skill, I reckon super is largely a waste of money that could be utilised in other areas, with similar or better results, and is accessible when you want or need it - not locked until you retire.
Accountants are funny creatures in this regard. My accountant is a very knowlegeable bloke, but one of his first conversations with me when we first started talking strategies to save on tax was for me to salary sacrifice into super.
I politely explained that I had no interest in that direction and we needed to look at other ways.
I just wonder if they are so used to talking to yer average Mum and Dad (not saying I'm a guru or anything, but I do have the odd clue) that it becomes their default position for advice.
If you back yourself to work with gearing or leverage than sure super is not the go.
this is the only limitation with super, no futures, therefore hedging is possible. Also no gearing of your own capital is possible.
For someone conservative like myself this is not an issue.
I primarily do not do super because your PPOR is tax free anyway (i.e. the rent saved is tax free) till I own one and it is paid off this is the best place to park my money as I see it.
After this if you can take the legislative risk super is the best place for your cash if you are not using leverage.
Agree it is for those who cannot save elsewhere but if you happen to be in your 50s (im not) then you really want to explore this in your last working decade. The regulatory risk is less and the benifits at that point are huge!
If your accountant's clients are mostly "mum & dad's"..... should you really expect anything else from them ?
Most accountant's clients are mostly mums & dads with no/little investments. I could be mistaken here, but I believe that James is the only one (that I know of, at least) who only deals with investors.
I was responding to bayview's last sentence which I bolded in my post.
If most accountants see "mum & dad's" and the advice is appropriate for "mum's & dads"... then what do you expect to be their "default position for advice" ? why be surprised at it ?
you seem to think that super is an investment. it's not. it's a structure.
That's also what came to my mind.
I'm sure some investors can and have used the super vehicle successfully in the past.