Retire at 45?

I frequently dream of what I would do if I had your level of income and savings.

I would get a PPOR. You deserve it. You will need a PPOR at some stage, you might as well acquire it early and let the property increase in equity. Are you based in Sydney? Maybe a house on a decent block of land in a nice area eg: lower north shore? Assume it's just you and your partner, probably don't need a huge mansion.Maybe a 3br in lower north shore house for around $1.5m - you need to expend about $370k for deposit and stamp duty. If you save $200k a year, you can pay it off in 6 years at 45yo! It won't be a lux pad, but why pay rent on one and help pay off someone else's mortgage, when you can easily afford to buy a decent place yourself and pay off your own asset!

That still leaves $230k of your cash, and with your income you've probably saved another $20k since your original post, so let's just round it up to $250k. I would spend the $ on deposits for new IPs. I'd probably buy some new apartments for maximum depreciation benefits. You can get about $1m worth, or pay some LMI and get more. In 6 years time, rents would have gone up, you would have received tax refunds for all the depreciation over the years, and hopefully they would be cashflow neutral if not positive.

You currently save $200k every year and I've assumed that's going to go towards paying off your PPOR. But you will also get pay rises each year. I would use the pay rises to add more IPs to your portfolio every year or couple of years. You should easily have a good pool of properties by 45. By then, hopefully there has been another boom, you can sell some of your IPs to pay off loans on others.

If you don't mind your job, I really wouldn't ditch it at 45. They pay you 10 times what a lot of people out there are earning full time. You can literally work a couple of months a year and earn enough to fund a reasonable lifestyle. I've assumed you would pay off your PPOR by 45yo. The single largest cost of living is accommodation (mortgage or rent). If you have taken care of that and do not need to pay for your accommodation, then you have eliminated a significant expense and you might be suprised how far $50k pa in today's dollars can get you. (Ok, it might be bugger all in the lifestyle you are used to, I wish I can relate :p ... ) This way, you would still be able to enjoy all the perks of being retired, play golf, travel, do whatever you want to do most of the year. This is worst case scenario, where your IPs are not generating enough income for you by 45. But since you don't mind your job and happy to work on a more flexible arrangement, it's really not that bad!

I don't know much about shares but it seems like you already have some exposure there. I think the property route is safer, you just have to be patient.

I've assumed you are going to do all ove the above on your own with your own income. If you plan to combine your efforts with your partner, it would be even easier for you, and you two would be unstoppable! :D:D:D

Just my 2c.
 
Cadence is you are correct...what you have detailed is absolutely correct.

The example you gave is correct but the break is 46.5% as you also avoid medicare (1.5%).

This level of planning required some planning and effort but well worth it. A scenario similar to mine is:

1. Commence investing in properties via older stock. Progress to small developments and keep some of the newer ones.

2. Progress to say $10m in assets...with say 30% debt. Sell down you older more maintenance intensive properties just before retiring on properties. Lets say you are left with $7m in assets bedt free with 18 properties...$350k in come..and $130k in expenses. That should leave you with $220k gross in income.

3. Lets say that you have $135k in depreciation and $15k in other deductions.
That gives you say $150k deductions.

4. That would leave you with a taxable income of 70k. And on that you will pay aobut 17k tax.

So you will have an net income around 213k. Even if it was lower say 180k..that is still pretty good....


Sash love your work. Don't mean to nitpick, but just want to point out, with 7.5k in depreciation per year per property, you get $75k in depreciation with 10 properties. You're not actually reducing your taxes by $75k. You're reducing your income by $75k, so you have to apply your top tax rate to work out your tax savings ie: $75k x 45% = $33,750.

I'm sure you're well aware of this and it was just a typo, but I just wanted to clarify for others who might be reading who are new to the forum/investing.
 
Hi, are yet crumbling from the helpful hints?

Sash has a very good point. You'll get ahead much faster if you attack the 200K tax. Your 600K offset cash is not helping very much.

2 things jump to the fore with property investment in your case.

1) PPOR - if you work this into your current situation, you're in no way able to retire well. Remember all the people who reach retirement to find out that they only have a house?

This is what I'd do: decide the suburb I want to retire in in 5 years. Look for the ugliest/oldest/most dilapidated house on the most land. If possible, in the best street, if not, then situated where I'd want to live. Then, set it up as an investment property, continue renting. Max out borrowing to do it up, fit it out with loads of white goods etc for maximum depreciation. offer it for rental.

You might be surprised what it does to the 200K tax that you pay.

Remember that you can get back the GST straightaway whereas with PPOR you can't.

By the time you retire, you've already maxed out the deductions.

2) The other thing that I'd seriously look into would be landbanking by buying old houses on big blocks. NSW has any number of largish rural centres. I personally like Wollongong but Newcastle, Albury et al are all possible places to shop.

Good luck with reading all the well intentioned tips. Sometimes we all here on Somersoft can be a pain!

KY
 
I must admit Terry that had me scratching my head too! It'd be lovely if you could though! (claim the GST, that is).
 
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