What financial assumptions are you using for long term planning?
Super 0.07
Inflation 0.025
Mortgage rate 0.05
ASX 0.08
I've recently been doing some retirement planning and everything is so sensitive to assumptions that it's very hard to pin down. What numbers do you use?
Edit to add;
Wage growth 0.04
Life expectancy 85
Does OP not have a crystal ball that tells them exactly whats going to happen in future?
Im sure Muzeeb has one as he has a quick answer for everything!
Poor OP.
In the same boat as everyone else.
I will give you 3 great investment tips OP for which you dont need a crystal ball….
And history has demonstrated time and time again that property DOUBLES every 7 years on average
And that rents (income) rise in line with CPI over the long term.
Thats all you need to know.
You reminded me of this poster that acted all knowingly and has since gone quiet (thank the heavens), because it was wrong on so many accounts. Times were wrong, facts were wrong and a whole lot of useless words written.
Property is a solid LONG TERM investment.
Always has been.
And OP is talking about "retirement" planning.
Hence my response.
No need for any assumptions.
Just one retirement strategy…
Accumulate property over time.
And agreed the linked post by ALesha77 is total scare-mongering rubbish.
@HeWhoKnows: I don't know many financial planners that would recommend you put all your retirement savings into one class of asset. You should diversify especially if your biggest asset is your home.
@foxinsox8: Thats because financial planners dont make any money from recommending property and most are broke themselves.
yes sure, have as small share portolio for your "play money" and some money in cash.
Goes without saying.
But I can tell you from my own experience!
PROPERTY, PROPERTY, PROPERTY
Thats where the REAL money is made.
@foxinsox8: I once had a retirement planner / investment bloke come around and talk about his services and options. I asked if he was happy to be paid as a percentage. He wasn't. He wanted fixed fees. I thanked him for coming.
@Amayzingone
You're in for a hell of a surprise!
I hope you're still here in 5 or 10 years.
LOL Junior partner obvoiusly
Your screen name says it all.
Mate Ive been in the game for 45 years!
So I think I know better than nearly everyone here.
But thats fine.
I dont need to boast.
Ive made my money and still making it from property.
But like shares, you need to choose the right property.
My super is my "play money"
And right now everything is in place for the biggest property boom in our history!
Havent seen such a huge opportunity in property in all my life.
But the GFC came close.
Anyone that bought property then when everyone was talking doom and gloom made megabucks!
Jump in now or look back in 5 years and say
"That amayzingone fellow was 100% correct!"
Like I say, I dont need to prove anything
Because history is on my side all the way!
Super 0.069
Inflation 0.0420
Mortgage rate 0.069
ASX 0.0420
What are the decimal numbers next to each item meant to represent? Are they the 'assumed' rate?
I guess if you do your calculations within a realistic range, you can keep an eye on it and review regularly to see if any fall outside the range (and then do a recalc, if necessary).Calculations with assumptions are meant to be indicative, not predictive.
Its garbage actually because its all meanless as OP has found out.
Assume everything is going to get more expensive. Plan to have excess money available to cover these expenses.
The excess money is kinda the problem. With a 50bp change in Super returns I can be either broke or a geriatric millionaire. Which means I could have retired a little earlier.
I suppose it's a question with no accurate answer. And I just have to adjust along the way.
A lot of people I know are going with retiring early and supplementing their income part time instead. Depending on your skills, consulting 10-20 hours a week can make ridiculous returns.
And if you wind up a millionaire, just travel more or invest it in something meaningful to you (charity, family, setting up your own mortar range to blow stuff up). Money doesn't make you happy but it sure helps.
They're probs doing Transition to Retirement (TTR)
too much money is an easy problem to fix. It's more the time I'm worried about wasting.
Alice are you likely to have a self managed super fund or a compulsory super account of the type that most PAYG taxpayers have? What age do you plan to retire? And will you own your home?
No idea on self managed or not, currently not. 45ish at the above assumptions, or at least quit my day job. Yes.
Moneysmart.gov.au
0.075 super
0.025 inflation
0.040 wage growth
Wage growth is an interesting one. My savings rate is large so it doesn't have a huge effect on my pre retirement planning but it does inform potential quality of life costs after retirement.
Should retirement income increase with wage growth or just inflation.
The wage growth assumption is needed only if you're still working and some years from retirement.
Not really.
If you retire on $80k with a 0.025 inflation uplift but everyone around you is getting a 0.045 wage growth uplift then after 30years of retirement you will be relatively quite poor.
Pensioners, for example, get the highest of CPI, Male total earnings, or the Pensioner living cost index.
@Alice McGregor: But you'll be retired. No longer incurring the costs of going to work. ASFA says a couple needs $70K for a comfortable retirement.
@sumyungguy: Sure. And your living standards won't fall. But it will decline relative to wage earners and pensioners.
That $70k now buys you a comfortable retirement of haircuts, holidays and kitchens, if I remember correctly. But in 30 years time at 0.045 growth people might expect flying cars, hoverboards, and robot maids, which you at 0.025 won't be able to afford.
@Alice McGregor: According to many sources, retirees spend less as they age. Even the wealthy eat out less, drink less alcohol and replace clothing and furniture less often. Spending tends to slow at around the age of 70, and decreases rapidly after 80. The problem is more that retirees are leaving behind too much money because they're scared of running out.
@sumyungguy: That sounds true. But I'm a long way off 70.
If I retire at 45. And only get 0.025 increases I'll be on 129k by the time I'm 70. A wage earner earning 70k will be on 210k. I won't actually be poorer, I'll just be poor compared to everyone I know.
@Alice McGregor: Well maybe because everyone you know may have chosen to work 22 years longer than you?
@sumyungguy: That or be on a pension.
But yes. That's why wage growth is still a factor even after retirement.
@sumyungguy: We , a couple , live on $50,000.00 comfortably and happily. We own our house ( no more mortgage) , we have a 5 year old Toyota Corolla. As we are 80, we have no need to spend on unnecessary things and we eat little ( not because we are mean, but we just can’t eat much). We keep ourselves healthy . Though we have adult kids round by but we try not to mix in their lives . We retired since aged 60. We believe contentment in life is most important . Be happy and no worries will definitely lengthen one’s life .
But wage growth rarely exceeds inflation in our enterprise bargaining economy.
That's because too many people are up to their eyeballs in debt and won't go on strike for more money.
Can you actually retire if you still have a mortgage?
.
Sure.. if you're planning on paying it off from your super balance.
Say you’re near the end of the 30 year term, repayments would be small and eventually end… so why not retire ? It’s not a prerequisite to be mortgage free to access super in retirement or TTR.
If you couldn't there would be no such thing as reverse mortgages.
It depends on the value of your house. Aim as high as you can. You can always sell and downsize or relocate.
Sequencing Risk, especially if you are early in the draw down stage.
https://www.challenger.com.au/adviser/adviser-resources/how-…
Challenger is the leading annuities provider so their advice is perhaps biassed toward customer recruitment.
Sequencing risk is not related to Challenger directly, and was only linked to as an explainer.
If you are skeptical of Challenger, then the following from Betashare and Morningstar are also available:
https://www.betashares.com.au/insights/sequencing-risk-what-…
https://www.morningstar.com.au/insights/retirement/214561/ho…
Sequencing risk is very real. But because it's higher early in retirement it's presumably easier to cover with a part time job. Long term return risk has you running out of money deep into retirement when a return to work is maybe less pleasant.
Thank you for this insight.
Why is SR higher in early retirement? Also sequencing risk can as easily occur with property especially if you are forced to sell at a specific time, for example to cover entry bonds into a nursing home.
The losses to Super are greater if they occur in early retirement; as you have the most money then.
That is why the risk of sequencing is real.
But as mentioned those losses are more easily recovered at the beginning of retirement through part time work. (As working part time just after retiring is way easier than working at the end of retirement).
I don't quite understand he point you are making about selling property; I mean it always goes up and so there never is a good time to sell.
@Eeples: That makes sense about SR if your super is earnings based not defined benefit.
Re property: even in places like London and Tokyo property prices have fallen precipitously at times throwing many into negative equity. In Australia it is a fallacy to say that prices always rise. They didn't for the first half of the last century. Then from 1975 to 88 prices didn't rise at all with numerous dips throughout that period. Would a retiree entirely dependent on property weather that easily? For seven years from the early 90s recession Australian property was down in dips (20 to 24% in Sydney and Melbourne) and flat across the entire period. No increase nationally at all. Just because young people might believe we are now a recession proof economy because they haven't experienced one doesn't make it true (and people are way more leveraged now). Aside from that there are numerous other reasons for forced property sales at inopportune times: divorce, business failure, poor health or, as I said, the sudden need to move to a nursing home and the massive bond in the hundreds of thousands that that might require.
This one from Ben Felix is also worth a watch: The 2.7% Rule for Retirement Spending
https://www.youtube.com/watch?v=1FwgCRIS0Wg
7 22 31 13 7 5 6
Powerball 3
7 22 31 13 7 5 6
Powerball 3
Sorry to say but, selecting 7 twice is not helping you retire this way.
Thanks.. should have not cheaped out with a financial planner..
Thanks.. should have not cheaped out with a financial planner..
…and I was just about to use you as my financial planner until I noticed that deliberate error (stops others sharing in your riches when you use the real winning ones. Very clever.
The fact that life could at any time means one should just live an amazing life each day. Follow your heart and you will live without regret.
Name checks out.
Life could what 😕
My guess was “…throw a curve ball”
I’d say only staying ahead of inflation is the only concern. Comparing your earnings to the workforce is irrelevant if you’re not in the workforce.
But do remember there are govt set % drawdowns per member from your super balance in retirement, beginning at 4%pa (Reinstated from 2% during Covid.) and it increases.
So a couple will be drawing down 8% combined initially . So you need 8% + CPI growth to maintain your balance. Hence SKI is compulsory and not a grey nomad in-house joke.
About the % drawdown, once withdrawn you can put it into your super accumulation account or into pension account if you want.
The drawdown is from your super in retirement mode. Whose accumulation acccont or pension account can you put it into?
Your own. See here: https://www.superguide.com.au/how-super-works/accumulation-r…
“Some or all of an account-based pension can be rolled back (commuted) into accumulation phase where earnings will be taxed at 15%, then used to commence a new pension in future. You can have more than one super pension account at a time.”
@Amazingly: Ah yes, Pension Refresh Strategy. Good for you if you're affluent enought to have too much money in retirement.
@sumyungguy: Those not affluent in retirement will be subsidised with pensions & perks. If you are affluent, you’re forced to spend - hard to do if you’ve lived a frugal life, responsibly saving for retirement.
If you roll back you pay 15%. May as well bank it and pay income tax - 1st 18k being tax free.
@sumyungguy: Well the plan is to spend money outside of super for a few years while doing the “refresh strategy” and pay zero tax :)
For a couple, he draws 4% of his balance, she draws 4% of her balance, for a total of 4% of their balance. Not 8%.
Ah, yes.
In my employment, I worked with lots of retirees. There was a common theme. Those who owned their own home were always smiling and enjoying life. Those who were renting were fearful of rent increases & eviction.
My advice to anyone planning retirement - make home ownership (mortgage free) a priority & most other things will take care of themselves.
At the very least, a homeowner in retirement could reverse mortgage.
But in life there are obstacles preventing home ownership in retirement. Divorce being #1.
You are abssolutely correct but you shouldn't be. The exemption of the family home from assessment of the fringe benefits of the pension sees many rich Australians receiving a healthcare card worth tens of thousands of dollars in old age, that those whose every asset is assessed (often renters) can miss out on. It is one of the most inequitable perks in the Australian tax/benefits system that keeps elderly people in massive multi million dollar homes protecting their heirs and receiving benefits. All paid for by poorer Australians!
Any recommendations for a retirement calculator?
They all return slightly different results so best to try a few, starting with the government's one: https://moneysmart.gov.au/retirement-income/retirement-plann…
And here’s my favourite tip for new players:
Alice invests $5000pa for only 10 years then stops at age 30. Ben invests same for 35 years from age 30.
At 65 years of age Alice ends up with $100,000 more than Ben at age 65 and invested $125,000 less than Ben.
So Alice is 225,000 better off than Ben.
James Shack (YT)
"So Alice is 225,000 better off than Ben"
Explanation: Alice married Ben at 65 and divorced shortly after keeping the whole lot.
Don’t have to marry, can move in for 3 months aged 65 and deemed defacto. Might get half his house but 0 of his super.
Health: 0.001
COVID-29: 0.87
I would assume nothing. Tighten your belt, plus stop spending on optional items. Salary sacrifice into Super to the max., and pay off the home ASAP.
And, very important, have a fully prepaid funeral …
life expectancy 77 as Asian Aussie .
That's an important assumption I missed.
I didn't bother with any of those numbers.
I need $60k after tax to live how I want.
Drawdown off capital is 4%, therefore capital is $1.5m in a tax free account based pension invested in Indexed Diversified or similar which will return better than 4% over the long term.
Every quarter add CPI increases.
It works for me but you need a lot less if you intend to "die with zero".
The biggest unknowns are life expectancy, general health and knowing when you might need aged care
Good for you, but it's a wholly unconventional strategy to maintain your balance at retirement, not become pension-eligible and transfer your wealth to the next generation. Just make sure you minimise super death tax.
I have no idea why people are so keen share their financial information with Centrelink and have the government set a deeming rate and have to personally limit the value of their assets in order to access a safety net of $28514 for a single person.
Minimising superannuation death tax just takes some wealth distribution prior to death. Difficult if you get hit by a bus or drop dead.
If you look at median super balances by age, the majority of retirees won't exceed the pension asset limit.
https://www.superannuation.asn.au/ArticleDocuments/359/23060…
@sumyungguy: Currently yes but you are dealing with a population that worked a large part of their lives before compulsory super so this will change.
@sumyungguy: I was lucky enough to be in a corporate super scheme from 1990. I was also smart enough to read the T&Cs of the scheme and found a small paragraph that said (more or less) "deposit $1 and we will match it". It was game on after that.
A lot of folk don't believe in Super - note how many that didn't need the money withdrew $20k during the pandemic.
I have a relative that lives payday to payday and they took out the first $10k and their first purchase wasn't their rent or paying down debt. They bought a drum kit.
Muzeeb: 420 69