You "Only" Need $1m to retire comfortably.

[truong]

If you leverage $1M, you can buy a $3M commercial IP that makes 8% and costs you 7% (of the loan) including costs.

So this would get you $100k in the first year.

Very rough example, but it shows that it's plenty to live on.

Too many issues with this strategy the 3 obvious ones being:

- Too little income with a leveraged property
- One single point of failure. Over a 30 year time frame it's almost certain your CIP will experience a prolonged vacancy period with nil income but still paying interest.
- Over 30 years interest rates will exceed 8% at some stage.

Bankruptcy almost guaranteed.

 

[truong]

Interesting, a fee people I know of retirement age are of the opposite mindset. During working years high capital creating investments are focused on that are often low yielding but in retirement they switch to higher yield investments. Who wants a 3% yield? Waste of capital in retirement imo

True but only in part. Many retirees chase higher yields but on a smaller part of their assets. This being my case.

 

[greedy2000]

property is a very poor retirement asset, low yielding and high ongoing costs.

the simpler approach of cashing it in, buying a diversified portfolio of managed funds/shares/cash etc in super for most people is the best option.

it allows you to draw down on the income as well as the capital over your retirement.

as an example lets say you own a property worth $1,100,000 which yields you a rent of $50,000 pa. after rates, management fees, insurance, maintenance etc you bight be lucky to net $35K pa. having that property will exclude you from the age pension as well.

even though you have $1.1M in assets you would be on roughly the same income as someone who has nothing i.e. the full age pension of $33K pa.

in retirement its all about the income, no point having capital growth if you can't access it. Borrowing the capital growth from the bank via a line of credit etc isn't the greatest idea in my book.

 

[jackbak]

I'm with Terry and think that's too much and just being greedy, especially if you're a couple with no children. $100k a year with a paid off house is a crazy amount to live on, $300 a day, every day of the year. Plus you'll have to work for an extra 15-20 years when you could've retired in your early 40's on $50k a year when you're more active and your health is much better.

It's all relative. $50k p.a. is probably a lot to someone on the pension. My target is over $100k and I don't think that excessive at all. We spend over $100k p.a. now on personal and living expenses and I only see that going up when we retire.

Also keep in mind that 17% of Australians die before they reach retirement age from natural causes or accidents. It would be a shame to spend so much of your life working and accumulating property if you can't take it with you or benefit from what it can provide you in terms of lifestyle. Property is merely the vehicle to finance your chosen lifestyle.

Therefore 83% of people make it to retirement, which means you really need to plan for it.

 

[jackbak]

property is a very poor retirement asset, low yielding and high ongoing costs.

I think you mean residential property? I wouldn't say commercial property fits that description at all.

 

[Peter_Tersteeg]

I'm with Terry and think that's too much and just being greedy, especially if you're a couple with no children. $100k a year with a paid off house is a crazy amount to live on, $300 a day, every day of the year. Plus you'll have to work for an extra 15-20 years when you could've retired in your early 40's on $50k a year when you're more active and your health is much better.

Also keep in mind that 17% of Australians die before they reach retirement age from natural causes or accidents. It would be a shame to spend so much of your life working and accumulating property if you can't take it with you or benefit from what it can provide you in terms of lifestyle. Property is merely the vehicle to finance your chosen lifestyle.

$50k a year is enough to live off if you enjoy a reasonably frugal lifestyle. I have an expensive hobby and want to spend a lot of my retirement travelling. I'm willing to keep working a while longer, have some awesome holidays in the meantime and enjoy life even more once I am in my 50s.

If my family history is anything to go by, I'll be physically active until I'm about 80 and likely live to my mid 90s. My only blood relative who died before 92 was my grandfather in his 60s from lung cancer as a direct result of smoking cigars all his life.

 

[Richard Feynman]

If my family history is anything to go by, I'll be physically active until I'm about 80 and likely live to my mid 90s. My only blood relative who died before 92 was my grandfather in his 60s from lung cancer as a direct result of smoking cigars all his life.

You forgot to factor in how radically fast (exponentially, actually) medical tech is progressing, and will continue to do.

Add a couple of decades minimum

 

[Phar Lap]

You forgot to factor in how radically fast (exponentially, actually) medical tech is progressing, and will continue to do.

Add a couple of decades minimum

Well, in that case, keep on workin' then !

 

[Terry_w]

property is a very poor retirement asset, low yielding and high ongoing costs.

the simpler approach of cashing it in, buying a diversified portfolio of managed funds/shares/cash etc in super for most people is the best option.

it allows you to draw down on the income as well as the capital over your retirement.

as an example lets say you own a property worth $1,100,000 which yields you a rent of $50,000 pa. after rates, management fees, insurance, maintenance etc you bight be lucky to net $35K pa. having that property will exclude you from the age pension as well.

even though you have $1.1M in assets you would be on roughly the same income as someone who has nothing i.e. the full age pension of $33K pa.

in retirement its all about the income, no point having capital growth if you can't access it. Borrowing the capital growth from the bank via a line of credit etc isn't the greatest idea in my book.

This is a very good point greedy.

I have a client (of my law firm) who has retired and is doing this right now. At first I couldn't understand why, but it does make sense.

Shares or EFTs have no stamp duty, no repairs, no agent fees, no land tax, no whinging tenants. But they do have franking credits, high yields and are easy to sell off in small portions and very quickly.

 

[Scott No Mates]

In retirement, the average person will spend 20-25 years. (not much less than your working life). You need to plan and rebalance your assets to extend the life of your savings - so there's a need to consider short, medium and long term investment strategies. This means having a mix of risk profiles as well as cash for the short term (0-3 years).

Super, which is being spruiked, is tax free in retirement phase (AFAIK) - why keep income generating assets outside of super if it will achieve a better net return than other assets held directly?

 

[cadence]

as an example lets say you own a property worth $1,100,000 which yields you a rent of $50,000 pa. after rates, management fees, insurance, maintenance etc you bight be lucky to net $35K pa. having that property will exclude you from the age pension as well.

even though you have $1.1M in assets you would be on roughly the same income as someone who has nothing i.e. the full age pension of $33K pa.

in retirement its all about the income, no point having capital growth if you can't access it. Borrowing the capital growth from the bank via a line of credit etc isn't the greatest idea in my book.

Maybe they can sell that property and park the proceeds in a savings account and live off interest?

If you sell a couple properties and have a couple mill in proceeds, assume 3pc interest, that could give you 60k a year

 

[Deltaberry]

75% gearing is pretty high. I think at retirement you wouldn't want more than 30% gearing.

 

[Ausprop]

30% is perfect. A little leverage is always good in order to benefit from the free carry that borrowers benefit from (referring back to earlier discussions with Sunfish regarding debt deflation, fractional banking etc)

 

[HomePage]

Super, which is being spruiked, is tax free in retirement phase (AFAIK) - why keep income generating assets outside of super if it will achieve a better net return than other assets held directly?

Because:
1. You can't access super before preservation age, making it unusable for the initial phase of an early retirement.
2. In line with age pension changes, preservation age is likely to increase for future retirees, exacerbating point 1.
3. It is currently tax free and available as a lump sum in retirement phase, however if the government changes the policy on these you will likely not be able to change your mind too and revert savings you put into super.

In other words, while super is currently attractive it does not favour early retirees and is subject to likely detrimental rule changes by the government in future that will be difficult to counteract. In short, be very careful about putting all your eggs in one (super) basket.

 

[Scott No Mates]

I would assume that those seeking early retirement would have assets outside of super to fund their lifestyle choice in the knowledge that super is inaccessible until retirement age (as opposed to the pension age which is higher).

 

[willair]

http://www.abc.net.au/news/2015-04-...s-for-high-income-wealthy-australians/6410800

http://www.abc.net.au/news/2015-04-21/super-tax-concessions-fc/6365098

 

[HomePage]

I would assume that those seeking early retirement would have assets outside of super to fund their lifestyle choice in the knowledge that super is inaccessible until retirement age (as opposed to the pension age which is higher).

I would assume they do too but the real shock may come to those planning to retire "normally" at age 60, when they can currently access their super, to perhaps find the government has moved the access goal post to 65 or even 70.

 

[Big Will]

I would assume they do too but the real shock may come to those planning to retire "normally" at age 60, when they can currently access their super, to perhaps find the government has moved the access goal post to 65 or even 70.

I sure as hell don't want to be working at those ages, hence why we are all here for the same reason to invest in our futures.

Delayed gratification I prefer.

 

[Northy85]

I think it's crazy we don't pay at least a little bit of tax when we reach retirement age. 15% tax on income over $75k is very fair and it still beats the tax you will pay on your property and share portfolios.

 

[Terry_w]

I think it's crazy we don't pay at least a little bit of tax when we reach retirement age. 15% tax on income over $75k is very fair and it still beats the tax you will pay on your property and share portfolios.

Don't forget the GST. This is one reason it was introduced, to tax those not working but still spending.