What Income Would You Need to Convince You to Stop Working?

Dacs on 16/09/2016 - 14:20
Last edited 16/09/2016 - 15:45

A post for pondering and discussion.

ASFA (Association of Superannuation Funds of Australia) gives these figures for people 65 years old:

  • Single, Modest lifestyle: $23,767
  • Couple, Modest lifestyle: $34,216
  • Single, Comfortable lifestyle: $43,062
  • Couple, Comfortable lifestyle: $59,160

The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. *

I think most people believe that they life fairly modestly (maybe more true on Ozbargain than most), though would like to have "just a little more" income than they currently receive. But if you look at the range of incomes of those people it's clear that that's really more a perception than a fact.

A couple living on $40k might think it's alright but that $60 would be fantastic, whereas a couple living on $60k would think it's alright but that $80k would be fantastic.

So here's the question:
What guaranteed annual income-for-life (increasing with inflation) would you have to be offered to permanently give up working for money right now?
Edit: Assume renting, or if you own a house then factor in an equivalent rental value into the number.

*Edit 2: Just seen that these figures assume home ownership, which would be worth, say, an extra $20-$40k per year, but would also have costs for rates, water, maintenance, insurance, etc

Edit 3: For anyone interested in this topic, Mr Money Mustache is a blog really worth following!

Financial

Comments

    • Dacs on 18/09/2016 - 16:42

      The things that have worked best for me are living below my means, never taking on debt except sometimes for investments and taking quite high risks in investment with money I could afford to lose

    • robbyjones on 18/09/2016 - 16:43

      Yes

  • Bullion78 on 18/09/2016 - 16:52
    +1

    40k per year passive income and i'd be gone living somewhere in SE Asia permanently only to return home to visit once a year.

    • raj koothrappali on 19/09/2016 - 13:32

      I hope that's after tax, as you will pay a 'big' non-resident tax in Australia

      • lolmao on 19/09/2016 - 14:38
        +2

        If he was a non-resident, he would only need to lodge a tax return if he had income that is taxable in Australia.

        • raj koothrappali on 20/09/2016 - 10:21

          The 40k per annum is the income in Australia!

        • Dacs on 20/09/2016 - 10:24

          @dreamz: I don't see where @Bullion78 says it's Australian income, but thanks for the reminder about the tax issue. It could be a significant factor for anyone wanting to try and lower their costs by spending time in a cheaper overseas country.

  • KangarooOz on 18/09/2016 - 18:31
    +3

    Be a member in parliament and enjoy tax payers funded tax free pension for a life time

  • Wormetti on 18/09/2016 - 19:03
    +2

    I can happily live on $15k/year passive income.

    • Dacs on 18/09/2016 - 21:37
      +1

      $15k a year??
      You could give congngo a few tips :-)

      • Wormetti on 18/09/2016 - 21:46
        +1

        I already live on that little, I just need to work on the passive part.

      • congo on 18/09/2016 - 23:28
        +3

        Different people have different expectations in life.
        I want to retire comfortable with lots of holiday, dinning, tech etc..
        Don't judge.

  • Bcd on 18/09/2016 - 22:38
    +1

    Been an avid reader of MMM for awhile.

    $35k/yr would be perfect for my family to live comfortably.

    Probably would still have some sort of extra income coming in from hobbies though.

  • brad1-8tsi on 19/09/2016 - 12:26

    $80k if I owned my house.

  • scratchback on 19/09/2016 - 13:35

    The minimum financial free is paid off house + 100k tax free income per year for 1 person. Hence couple at least 150k after tax, which means at least 4m investment.

  • ukulele on 19/09/2016 - 14:10
    +1

    Followers of MMM should also check out Millennial Revolution. They advocate a different way that doesn't require a home, plenty of ways to do the "early retirement". Apparently their yearly spend travelling was 40k CAD as a couple! The Canadian and US systems are so much better for the Early retirement crowd.

    I would be more conservative than Millennial Revolution and the 25 times rule. I would not like to see the capital diminishing every year. Right now I'm on 84k with car petrol tolls and mobile phone. I am comfortable at the minute saving a lot while living at home. My target is close to my current salary at 80k without the house. I don't have kids at the minute so I don't really know the effect of that!!!! I've done the maths, 45 years old is the target if everything goes smoothly (I am 32 now). On balance my investments have done well so far.

  • congo on 19/09/2016 - 16:12

    IMO I don't agree with MMM. I think with the same amount of effort and energy you put into reducing expenses, you be better of putting that energy into generating money.
    Ofcause you should not waste it on unnessarry things like designer labels.
    But you live once. You should enjoy it. And you shouldn't restrict yourself from reaching your maximum income generating potential.

  • Ace26 on 19/09/2016 - 16:27
    +1

    thanks Op for the links and the topic
    At the current rate of expenses and if the kids expenses are not included I believe 60-70k per year would suffice a decent retirement for me and my partner. Provided the house is paid off by the retirement. This amount would allow me to maintain current lifestyle go overseas every now and again and replace car every 6-8 years or so and some money to spare to help out kids/grand kids.

    Having said that at a 4% return (or drawdown on pension) I will need to have about 1.5m-1.75m- in super/pension by the time I retire, unless of course there is some passive income. This seems like a lot of money to save. So I think I will be working for a very long time before i can get this income.
    Having said that I probably dont want to retire early because I have seen my old man's health go down like you are on a slippery slide after retirement.

    • wortho on 19/09/2016 - 20:27

      Those figures would suggest you want to maintain or grow the balance and leave something behind for the kids? The interest alone would give you the 60k if you had 1.7 million.
      https://www.calcxml.com/calculators/how-long-will-my-money-l…

      • Dacs on 19/09/2016 - 21:27

        You're assuming 3.5% interest.
        Where would you get that interest? Currently the best interest (besides introductory rates) is 2.87% at UBank, for a maximum of $200k. You could split the investment among multiple other banks and get around 2.3% overall. That's pretty much equal to current inflation, but you'd also get taxed on the interest. Interest would likely rise and fall in line with changing inflation.
        Using your calculator link with a 60k withdrawal and those numbers give about 27 years. With increasing lifespans, someone who's 50 today might easily live for another 50 or 60 years.

        • wortho on 20/09/2016 - 09:03
          +1

          I'm getting 3.15% with RAMS which is not intro but no withdrawals and must put $200 per month which is ok with me. You can also get 3.4% with a 5 year Term deposit. https://docs.google.com/spreadsheets/d/145iM6uuFS9m-Rul65--e…

          BTW, Ace26 was using a 4% return and my point was with those figures the interest alone would cover the 60k.

          Tax also depends on your situation but if you are retired after 60 the investments in super are tax free. For low risk you could put your money in an ETF such as Vanguard Australian Fixed Interest which has returned 5.25% since inception and 6% last year.

          At the moment with my Wife not working age 52 we are better off keeping our savings out of super as she can earn up to $18,200 in interest without paying tax. When I retire this will be 2 x $18,200.

        • Dacs on 20/09/2016 - 11:55

          @wortho: The difference is that with investments in a mix of stocks, bonds and bank interest it should be possible to continue drawing 4% of the initial amount and increase that in line with inflation, and still have the capital grow to match inflation.

          If the investment is only in a bank account getting interest then the capital will become worth less and less - Slowly at first but accelerating quickly after a couple of decades.

          The reason that the Vanguard Australian Fixed Interest ETF and other bonds have done so well since the late 1980s is that interest rates have been declining but they can't do that forever. The Yield to Maturity of that fund is currently only 1.94%. If interest rates and inflation start to rise then the return on that ETF could fall well behind inflation.

        • Ace26 on 20/09/2016 - 15:23

          I was using 4% return / draw down as an example (also I think 4% account balance was minimum withdrawal when you an allocated pension account from memory this percentage increases as you age) With the average life span increasing and cost of medical help in later stages of life I thought it was important to not live off savings in the first decade of retirement. Also we wish to leave some money for kids / grand kids.

    • bargainjargon on 20/09/2016 - 14:21
      +2

      I'm sure it's different with everyone but my parents are much healthier now that they've retired compared to when they were working. They had office jobs though so they sat around a lot whereas now they're always out and about.

      • Ace26 on 20/09/2016 - 15:18

        My old man was a civil engineer and retired to doing nothing. He did a bit if travel but not much. I work in office environment and hope to have at least two hobbies that make me go out of the house (not including trips to the pub :))

  • arbok on 19/09/2016 - 16:39
    +1

    I'm on about $6k a year for a couple, but I do live overseas in Malaysia. Probably double that when I move back to Australia.

    Not including kids though - when I send them to school, im sure costs are going to balloon.

  • LadyCocoa1234 on 19/09/2016 - 23:09
    +1

    Dole money

  • bargainjargon on 20/09/2016 - 11:21
    +3

    My wife and I are in our 30s and own our home. No kids. Well, not human ones anyway (cats). We spend on average just under $40k a year. About $6k-9k of that goes towards helping out my in laws. We go overseas about once a year but we travel cheap. Have an old car that's fun and cheap to run. We love to eat. We have our own hobbies. (I myself like photography and have amassed a decent sized camera gear collection. Wife enjoys martial arts plus arts and crafts.) We don't feel like we're missing out.

    We're trying to save as much as we can and hopefully make some smart decisions now that will pay off later. We're from SE Asia and the plan is to live there once we get sick of working full time. Just rent out our place here and live there. If I can get some odd jobs then great. If not, that's cool too.

  • ericb on 20/09/2016 - 12:54
    +1

    My wife and I can comfortably travel overseas on $1000 per week (inc accommodation, airfares, transport etc.) so $26,000 p/a (Assuming that she gets the same income). However, I would sell the house that the table assumed I owned as that would cost me heaps in holding costs whilst I was overseas travelling.

  • cauilfield on 20/09/2016 - 17:15

    I really enjoy my work, but hypotheticaly I would enoy working 3-4 times a week in return for $100k

    Currently I'm making circa 200k

  • Sinful on 20/09/2016 - 18:08

    $500 a week is what I am working towards with rental properties.

  • captobvious on 20/09/2016 - 20:03
    +1

    I want to be a billionaire so freaking bad.
    That would be enough for me to throw in the towel.

  • freakatronic on 21/09/2016 - 09:32
    -1

    Anyone who couldn't live comfortably on $40k p/a clear, could not survive on $1m p/a clear.

  • frewer on 21/09/2016 - 11:03

    Couple, Modest lifestyle: $34,216

    If they have very little to paid ( mortgage, get electricity from solar, water from water tank, have a Tesla car, have a decent size garden bed) then $34,216 would be "excessively" good enough

  • camzorocks on 21/09/2016 - 11:07

    I just want an AMG GTS.

  • Dacs on 23/09/2016 - 22:01
    +2

    I just came across the doco "All I need" which was made by Ubank. Worth watching.
    Ubank gives surprisingly responsible advice.

    I think many people have an ambition to achieve the lifestyle of the Winn family in the doco without thinking enough about what is really important in their lives.

    • bluesky on 24/09/2016 - 04:45

      Thanks, great message to take away. To think about needs vs wants, and opt for less wants in return for happier and more meaningful life, and less stress.

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