How much is enough?

[Ace in the Hole]

You are right Kathryn.

If you want something badly enough, the determined and dedicated will find a way.
Persistent sacrifice and hard work will pay off in the long run.
But once you get there, you should at least enjoy the fruits of your labor ?

 

[ali]

Hiya Ali

I cook once a month for the community; mainly retired people plus all walks of life...3 months ago i met this old couple...be patient i have a story to tell...

They did not seem to know anyone and so i brought my food and thought i will talk to them...boy! was my initial assumptions wrong! turns out the husband worked for AMP as a financial advisor and retired at 40 did i mention he was a Colombo Plan scholar? So i ask him how he did it...use OPM (Other people's money) he said; buy property as soon as you can....he has never gone on the pension and lives entirely off rents...

So i told him i want to retire too in 10 years but just can't estimate how much one needs...very easy he says...he and his wife paid off their mortgage, make do without a car (they have a huge house near the train station in Epping, Sydney) and $2000 per month makes them pretty comfortable.. plus they afford the yearly trip overseas too:)

(i did ask about kids; they say they calculated starting from when their son entered uni and that is when they assume independence)

So my target is 2500-3000 per month.(10 years time)

a) 1000 per month from net rents (achieved!)
b) 1000 from super (based on 5% return; needs super of 200K: )
c) 1000 from term deposits (again needs 200K base ; needs 20K savings per year should be achievable in a 10 year timeframe )

So there you have it...a very simple retirement plan...of course i plan to surpass that but that is just a rough model...hope this helps

Hi Virgo, that's great you are getting $1000 a month for net rents! Did you pay down the principle or develop or just let time take it's course? Or a combination?
I agree with the man you quoted about buying property as early as possible. We are paying down our mortgage so aggressively now ($10,000 a month as stated in an earlier post) to catch up financially with all our friends who bought inner west Sydney houses in the late 1990s!
I think regardless of what you earn, at some point in your life you need to save much more than you spend, whether that's in your 20s or 40s, but it's better to do it in your 20s financially of course. Another thing we did, especially my husband, was to invest heavily in our careers, which has paid huge dividends in recent years.
How much is enough? We aren't big spenders but I would like $100,000 a year for my husband and I to live off (in today's money) plus enough to continue reinvesting in case we live to 120!
Cheers, Ali

 

[sanj]

Excellent Virgo, looks like you're on your way.

My makan budget can be pretty big too but the cheapskate Singaporean in me is able to find great food at a good price, even in Perth.

 

[HiEquity]

I am a simple person with simple tastes; i have seen too much poverty in this world ( i lived in Sri Lanka for a few years..long story) that many huge amounts quoted on this forum for retirement sounds quite "vulgar" to me:(

(okay gotta get ready to dodge some bricks now)

I agree with this. While I like the financial security that some of the bigger amounts being thrown around would give, I can't imagine utilising it on wasteful, luxury spending. I just don't enjoy that sort of thing. Especially when it is often so energy hungry - like frequent o/seas flights or spending $1000 on diesel to get your cabin cruiser to Rottnest and back. That just doesn't make sense to me.

But renting out the PPOR and spending a few years sailing around Australia on a catamaran that does 3 nautical miles per litre does still hold an attraction!

For me, having an active and (financially and energy) efficient retirement lifestyle would be most enjoyable.

 

[kathryn d]

You are right Kathryn.

If you want something badly enough, the determined and dedicated will find a way.
Persistent sacrifice and hard work will pay off in the long run.
But once you get there, you should at least enjoy the fruits of your labor ?

Getting there is a journey.
We retired 2 1/2 years ago, and spend an average $12 -$15 yr on our ourselves.

Without doing anything, because our mortgages are P & I, in a few short years, we will be bringing in $120K pa (in todays dollars).
I have no idea what we will spend that much on, except to buy more? (probably not)

Wasting it on new clothes and books?
I hate shopping, so probably not
but I do enjoy Op shops


It's great, every one is different.
That is what keeps the economy going, I guess.

 

[Deltaberry]

Depends on your annual salary, Terry. I don't fulle agree of what DB says. One thing is having a 300k salary,other making 40k.

I dont think you're on 40k, right DB? Most likely on the other side.

Yes but I didn't start in the 300+ ranges. In fact I was spending less as a % of my salary 5 years ago than I do now.

In my first year of work I didn't eat out (partly because I didn't have time and my company paid for all my meals even if I did any way), I didn't pay for transport (company paid all taxi fares), lived at home, used my company mobile phone.

I worked all night and most weekends, didn't really have time to do anything else any way. The only overseas trip I went on to London was again work-related so everything from airfares to accommodation was covered again. That's why I kept my expenses to below 5% of my salary.

 

[matto_]

Some really insightful comments - thanks for you input.

@ Jake D - if it was you who posted the link to MMM. thanks. As suggested I have really enjoyed, and taken a lot out of the content.

@ Kathryn - That is certainly the thought. But I wanted to put a stake in the sand first. The initial goal wont be enough to support us fully but will get us a long way along the path. Agreed on "like mindedness". There are lots out there who spend loads indiscriminately, but not a lot on the other end of the spectrum by choice.

@ Ace - it appears from my reading that, "housing" is always taken into account, whether this means a fully paid off PPOR, or in the case of ERE - living in an RV.

@ Ed - MMM focuses on the savings component. He outlines that he doesnt think his time is worth spending on trying to improve investing strategies, as he is comfortable putting his savings into a "low cost" index fund and earning 7%. I am not fully aligned with this view, but certainly reduces the complexity.

@ Devan - thanks for that spreadsheet - I have added it to our arsenal of tools/ that we can use.

@ HiEquity - totally agree - I have focussed on his thought process, and added it to my investing thinking, with the assumption that it is very powerful to "join the two".

@ Ali - it is never too late to start (API this month has an article on people who have started late - and they are all a lot later than you). Definitely a fine line between saving too much and too little. Your IP expenses can come back to you during the year rather than waiting till tax time.

@ wategos - 2/3 of the way towards 54000 passive income. going great guns. how much longer do you think it will take to get the rest of the way.

@ Jackbak - the whole point of MMM is that he says anyone can do it within 4-5 years, regardless of starting income. Obviously the higher the income the quicker retirement can be achieved.

@ lizzie - great story and amazing amount achieved in such a short space of time.

 

[handyandy]

Hiya Ali

I cook once a month for the community; mainly retired people plus all walks of life...3 months ago i met this old couple...be patient i have a story to tell...

They did not seem to know anyone and so i brought my food and thought i will talk to them...boy! was my initial assumptions wrong! turns out the husband worked for AMP as a financial advisor and retired at 40 did i mention he was a Colombo Plan scholar? So i ask him how he did it...use OPM (Other people's money) he said; buy property as soon as you can....he has never gone on the pension and lives entirely off rents...

So i told him i want to retire too in 10 years but just can't estimate how much one needs...very easy he says...he and his wife paid off their mortgage, make do without a car (they have a huge house near the train station in Epping, Sydney) and $2000 per month makes them pretty comfortable.. plus they afford the yearly trip overseas too:)

(i did ask about kids; they say they calculated starting from when their son entered uni and that is when they assume independence)

So my target is 2500-3000 per month.(10 years time)

a) 1000 per month from net rents (achieved!)
b) 1000 from super (based on 5% return; needs super of 200K: )
c) 1000 from term deposits (again needs 200K base ; needs 20K savings per year should be achievable in a 10 year timeframe )

So there you have it...a very simple retirement plan...of course i plan to surpass that but that is just a rough model...hope this helps

I would assume that the old couple had no debts ie mortgage on any of the properties including PPOR.

It is an absolute necessity that you have very little debt left on any property as your net rents will disappear very quickly in the face of increasing interest rates.

Similarly income from term deposits and super are variables and are slaves to the same (but inverse) interest rate fluctuations.

One simply solution is to aim a little higher to ensure an adequate buffer.

Cheers

 

[china]

To keep it really simple, in order to retire/be financially independent, a single person with no dependents, needs to

1. own their PPOR and

2. have 2 million in net, unemcumbered assets. The two million can be held in a mixture of term deposits, cash, super, shares and property. Assuming a net return of 5%, this should give pre-tax 100k per annum. This allows regular eating out, overseas travel once/twice per year flying economy and internet surfing. I think that an extra million needs to be added for each extra person/dependent.

It would be good to get to this stage by age 40 so that there is time to enjoy. Ideally, on the death bed, it is best to have no assets and much credit card debt.

 

[aussiestinger]

A little off the topic here, but after reading this post, it has motivated me to be more 'cautious' of my spending. I am afforded a great opportunity to earn reasonable amounts of money, have all my food, accommodation and travel paid for. Although I spend 10% - 15% of my current income, I feel l could save more to invest more through more diligent tracking of my monies. My question is, could anyone recommend an excel spreadsheet where I could track more of my spending/savings?

Thanks.

 

[Angel]

I have an awesome budget spreadsheet if you would like a copy.

China, my friend, do you realise that $100K in future income once your PPOR is paid off is like $60K or $70 K when one has a current Sydney mortgage. You really wont know what to do with $100K per annum as a single guy once you are financially independant.

I know you mentioned a couple of oversea trips each year, but do you really think you could handle being couped up with the blue rinse set in those very expensive five star tours. Wouldnt you be happier backpacking around with us frugal types, free from all the annoying tourists?

 

[china]

I have an awesome budget spreadsheet if you would like a copy.

China, my friend, do you realise that $100K in future income once your PPOR is paid off is like $60K or $70 K when one has a current Sydney mortgage. You really wont know what to do with $100K per annum as a single guy once you are financially independant.

I know you mentioned a couple of oversea trips each year, but do you really think you could handle being couped up with the blue rinse set in those very expensive five star tours. Wouldnt you be happier backpacking around with us frugal types, free from all the annoying tourists?

This is why the 2 million asset base/ retirement fund must be kept in a range of asset classes such as shares, properties, term deposits so as to be a hedge against inflation. Hopefully, the 5% return p.a. is relatively preserved and therefore, the 100k in today's value is preserved over time. The 2 mil goal is in today's dollars, not in 10 or 20 years time.

I think that backpacking was for our late teens and early 20s. As we get older, I would not wish to share bedroom/amenities with strangers. We have worked hard and should enjoy finer things in life.

 

[Melbournian]

i think it is good to live within your means - i got retrenched from my 1st job and hard to survive a couple months on cornflakes and noodles while selling my car to fund the mortgage repayments on my first property.

agree with china on that = those backpacking places are for ppl who just out of school or been in the workforce for like 2 years. there are easier ways to get good accommodation and flights such as having a handy credit card with rewards

just booked 1st class tickets return to europe in april and got 2 business class return from asia for my parents.

 

[HomePage]

Having devoured everything there on MMM, ERE and a few other like-minded sites referenced there in recent weeks, I've come to the realisation that I'm already doing most of what they say and am about 15 months off achieving a very comfortable ER myself. All at the grand old age of 45! I cannot thank enough whoever posted the MMM link up here first for enabling this epiphany for me.

 

[china]

i think it is good to live within your means - i got retrenched from my 1st job and hard to survive a couple months on cornflakes and noodles while selling my car to fund the mortgage repayments on my first property.

agree with china on that = those backpacking places are for ppl who just out of school or been in the workforce for like 2 years. there are easier ways to get good accommodation and flights such as having a handy credit card with rewards

just booked 1st class tickets return to europe in april and got 2 business class return from asia for my parents.

Although I suspect that earning 100k per year pre-tax does not allow flying first or business class to europe. 100k per year is a reasonably frugal but comfortable retirement. You can probably drive a Lexus !S250 but not an E class mercedes.

 

[devank]

a) 1000 per month from net rents (achieved!)
b) 1000 from super (based on 5% return; needs super of 200K: )
c) 1000 from term deposits (again needs 200K base ; needs 20K savings per year should be achievable in a 10 year timeframe )

That is an interesting spilt

This is my plan in 18 years time.
IPs:
Sell our IPs. Use the profits to pay off our future home mortgage and fund children's (3) home deposit (20% or more) and ask them to give us the interest at banks savings rate. Hopefully this should give about 15K per year.
I know legally I have to declare that as income

Super:
Hopefully super would be about 500K combined. That should provide about 20K per year.

That is all we can do at this stage!

 

[jingo]

That is an interesting spilt

This is my plan in 18 years time.
IPs:
Sell our IPs. Use the profits to pay off our future home mortgage and fund children's (3) home deposit (20% or more) and ask them to give us the interest at banks savings rate. Hopefully this should give about 15K per year.
I know legally I have to declare that as income

Hi Devank,

I know nothing about your situation, so this may not be possible. But just wondering if it would be more efficient to keep an ip or two rather than selling, and using equity in these to fund your children's deposits on their own homes? That way you get to keep the assets for the long term and help your children. Just a thought, but it may not be feasible??

Regards Jason.

 

[Rolf Latham]

100k per year is a reasonably frugal but comfortable retirement.

do u mean in todays numbers ?

ta
rolf

 

[china]

Yes, the purchasing power of 100k pre tax in today's dollars.

 

[TingTong]

$100k pre tax would be more than $200 a day net?
I don't reckon that's living frugal if your single, have no dependents and accommodation is covered.

$2m in assets yielding 5% at $100k pa would be a comfortable life in Oz but if you moved to SE Asia or Sth America you could easily do it on less than half that and therefore retire MUCH younger.
And if you rented out your accom while living o'seas then you'd have an extra ~$50-80 a day.

Great blog that ERE. He says calculate your annual expenses and multiply it by 25. If its lower than your net worth then you are financially independent and can go a few decades without a job. If you multiply your expenses by 35 and still qualify then historically, you could go on forever.