retirement strategy

Hi,
I have a goal to generate a passive income of 75k in 5 years. is it possible .

current situation

Me 48 yo. working full time earning 185k with annual bonus of around 10 %
wife 48 yo. working Pt 2 days per week, earning 12k pa.
children 2. 18 yo in uni and 15 yo in school.

assets 2.4 M, liabilities 1.3M, made up of the following:

ppor value 1.3 M , owe 180k, available to redraw 27k

ip1 value 500k, owe 350k

ip2 value 560k owe 240k

Loc Buffer Loan owe 433k, available redraw 10k

share portfolio value 110k , owe 90k

other shares value 80k, owned outright

I am aggressively paying off my ppor with all ip rents and additional 4k of salary paying off mortgage on top of interest payments. I regularly reduce the limit on my ppor and switch the same amount to my investment buffer loc, which is ued to pay all investment related interest and expenses.


I am on track to have cleared my ppor mortgage by end of 2015, by using the debt recycling strategy above.

However this could be further shortened if I sold the other shares, paid down the mortgage and then switched the limit to the Loc and purchasing some other shares using investment debt. The net borrowings are the same but the ppor mortgage is reduced by 80k.

so far so good but here is the catch. What do I do next ? As my prime focus over past 4 years has been to reduce my ppor, I am reticent to borrow more, but I realise that i need to increase my asset base if I want to benefit in the long term.

I do not want to work longer than I have to and ideally want to be able to hook up a caravan and travel around oz in 5 to 7 yrs once kids have finished uni.

I am looking for options for the next steps. I realise I have a good lvr and lots of equity, and want to capitalise on this without taking unnecessary risk.

Thanks for reading if you got this far!
 
You just need to do some spreadsheets and run scenarios

Have you considered selling the shares you own outright and using the proceeds to pay off the PPOR loan and then buy back th same or similar shares in wife's name.
 
Hi,
I have a goal to generate a passive income of 75k in 5 years. is it possible .

current situation

Me 48 yo. working full time earning 185k with annual bonus of around 10 %
wife 48 yo. working Pt 2 days per week, earning 12k pa.
children 2. 18 yo in uni and 15 yo in school.

assets 2.4 M, liabilities 1.3M, made up of the following:

ppor value 1.3 M , owe 180k, available to redraw 27k

ip1 value 500k, owe 350k

ip2 value 560k owe 240k

Loc Buffer Loan owe 433k, available redraw 10k

share portfolio value 110k , owe 90k

other shares value 80k, owned outright

I am aggressively paying off my ppor with all ip rents and additional 4k of salary paying off mortgage on top of interest payments. I regularly reduce the limit on my ppor and switch the same amount to my investment buffer loc, which is ued to pay all investment related interest and expenses.


I am on track to have cleared my ppor mortgage by end of 2015, by using the debt recycling strategy above.

However this could be further shortened if I sold the other shares, paid down the mortgage and then switched the limit to the Loc and purchasing some other shares using investment debt. The net borrowings are the same but the ppor mortgage is reduced by 80k.

so far so good but here is the catch. What do I do next ? As my prime focus over past 4 years has been to reduce my ppor, I am reticent to borrow more, but I realise that i need to increase my asset base if I want to benefit in the long term.

I do not want to work longer than I have to and ideally want to be able to hook up a caravan and travel around oz in 5 to 7 yrs once kids have finished uni.

I am looking for options for the next steps. I realise I have a good lvr and lots of equity, and want to capitalise on this without taking unnecessary risk.

Thanks for reading if you got this far!

If you see yourself living in a different ppor in future put the money into an offset linked to the ppor.

with respect to increasing your asset base i think you'll need a lot more so you'll need to keep buying good quality assets and you will also need to change your mindset about borrowing to purchase income producing assets.
 
That equity has to start making you money.

Either dividends or rent as you are chasing yield. Will the paid off properties and shares give you sufficient income? If not then you need to purchase more assets. Maybe consider a small development plenty of people doing that in Perth on here. Good luck
 
Retire?

Hiya Dockerboy

I noted a few points which may help you on your way:D

a) Your PPOR is a security asset not a wealth-creating asset....have you considered downsizing? after you finished paying it off, it is a lazy 1 million sitting pretty.....many people think their own house is an asset ; took me a long time to put my head around....it is a liability, a liability, a liability....

For me, however i did not want to move from my area so i did the next best thing, convert this liability into an asset by building a granny flat for passive income...FOREVER

b) Are your IPs cash flow positive?

c) Are your shares giving you net positive cash flows?

d) Is your super ok? At 55 you can do a TRIP and take part of your super out to reduce PPOR mortgage..

For me, i find early retirement is easier by concentrating on generating cash flows than by building a huge net worth.

My own three sources are :

a) Cash flow from IP
b) Share dividends
c) Super at age 60 (get that salary sacrifice 35K limit going..)

d) Maybe dipping a little aka LOE my PPOR from age 60 onwards for life's luxuries ...why not..plenty there ...

all the best

Also read this blog: it helped me cystallise my plan:http://www.financialsamurai.com/achieve-financial-freedom-slice/
 
a) Your PPOR is a security asset not a wealth-creating asset....have you considered downsizing? after you finished paying it off, it is a lazy 1 million sitting pretty.....many people think their own house is an asset ; took me a long time to put my head around....it is a liability, a liability, a liability....

For me, however i did not want to move from my area so i did the next best thing, convert this liability into an asset by building a granny flat for passive income...FOREVER
Not sure whether this will have an impact, but doesn't hurt to have a read.
http://www.bantacs.com.au/QandA/index.php?xq=435

d) Is your super ok? At 55 you can do a TRIP and take part of your super out to reduce PPOR mortgage..
This also depends on the year in which the person was born. Not all people can access at age 55.

Furthermore, accessing the super at this age through a non commutable income stream can result in tax issues depending on the components that one's super comprises of.
 
Run Free:)

Not sure whether this will have an impact, but doesn't hurt to have a read.
http://www.bantacs.com.au/QandA/index.php?xq=435


This also depends on the year in which the person was born. Not all people can access at age 55.

Furthermore, accessing the super at this age through a non commutable income stream can result in tax issues depending on the components that one's super comprises of.

Hi Nek

Yes, i did factor CGT into my consideration and goals for early retirement...but a good reminder nevertheless....:) To each his own circumstances as i envisage one of my kids will move in there and pay me board ??

The TRIP thing is a backup plan for me tho...if i were to do it, i would take the super out and recontribute ...

My hubby is on the highest marginal tax rate (and i do believe the OP is too?) and so super is going to be a bonus in the not too distant future ...one thing that helped me clear my head was all i had to do was "crawl" to 60 and after that super pension is tax free...more than enough for us:p

In other words, if i have enough savings/ cash flow to feed my kids till 60...i am clear to run free:) that certainly put a smile to hubby's face....which incidentally is all i care about:D
 
I'm just thinking of this conceptually. If you are after $75k income at retirement you need $1.5Million of investment assets (free hold) earning you 5% yield. This $75k will then be taxed at your marginal tax rate. So you probably need around $1.8million. Currently you have $1.1m of Investment assets & $1.3 Million of total debt. Net position is -$200k. In 5 years your investment assets may grow to $1.55mil (based on compound growth of 7% pa). Can you pay off $1.3m in 5 years, if so, this may be a safer strategy? Also be mindful that you can access your super at 60 (Current legislation).
 
Thanks all for your insightful posts

I will look at suggested links. There is a balance to be struck and i probably need to build my asset base before i get much older..
 
Sell your ppor
Buy a new ppor for $500k
Put $590k into the offsets of your ip's

You should have zero debts at this point

Save $100k per year for the next 5 years - your ip income & wages should make this readily achievable
Put extra cash into term deposits or shares under your wifes name to reduce tax payable

You should have $1.5m investments in 5 years - should be able to get $75k income from that. I assume the ip income is in your name and other investment income is in your wifes name so income is being split to minimise tax
 
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Sell your ppor
Buy a new ppor for $500k
Put $590k into the offsets of your ip's

You should have zero debts at this point

Save $100k per year for the next 5 years - your ip income & wages should make this readily achievable
Put extra cash into term deposits or shares under your wifes name to reduce tax payable

You should have $1.5m investments in 5 years - should be able to get $75k income from that. I assume the ip income is in your name and other investment income is in your wifes name so income is being split to minimise tax

Or sell PPOR and live in one of the IPs...
 
Hi All,
There is a theme around putting funds in an offset account rather than paying off the mortgage... Is this just to have a readily available source of funds ? or am i missing something else ?
thanks again:)
 
Hi All,
There is a theme around putting funds in an offset account rather than paying off the mortgage... Is this just to have a readily available source of funds ? or am i missing something else ?
thanks again:)

Tax consequences mainly.

If you pay your cash into a loan and later need it you would have to reborrow it. If you reborrow the interest would not be deductible unless if was borrowed for investment or bsiness purposes.
 
Another idea - who owns IP 2?

If wife or you and wife consider borrowing to buy wife's share. Interest could be deductible, minimal CGT (?) if she has low income. Proceeds used to pay down PPOR.

stamp duty exempt in Vic.
 
current situation

Me 48 yo. working full time earning 185k with annual bonus of around 10 %
wife 48 yo. working Pt 2 days per week, earning 12k pa.
children 2. 18 yo in uni and 15 yo in school.

assets 2.4 M, liabilities 1.3M, made up of the following:

ppor value 1.3 M , owe 180k, available to redraw 27k

ip1 value 500k, owe 350k

ip2 value 560k owe 240k

Loc Buffer Loan owe 433k, available redraw 10k

share portfolio value 110k , owe 90k

other shares value 80k, owned outright

Dockerboy, need more info

Interest rates on all loans (inc your margin loan)
Rentall income (net of expense) on the IP's

Otherwise it's all wild guesses.

The Y-man
 
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