Hello!
I am about 20 years away from retirement and I am wondering what a $70k spend looks like.
In 20 years:
I enjoy eating out a couple of times a week and as for travel would see myself doing overseas travel 2 times a year.
Any one currently retired and on $70k/year?
Keep in mind once you move into retirement phase, your savings in super is tax free, so keep pumping into super
In terms of retirement planning, the ASFA basic and comfortable retirement guides are a good place to start. These get updated regularly too. Super income is tax free in retirement so $70k would be the equivalent of earning quite a bit more in a job. If you don't have a mortgage any more then it would be just fine for a lot of people.
A big question I guess is how much the age pension will resemble current arrangements in the future. Right now it is possible to have a decent retirement with a relatively modest super balance because you get the age pension (or a part pension) too, meaning you need to draw less from your super.
A big part of bringing in younger immigrants is towards funding things like pensions, because our ageing population was going to make it very difficult if there were not more younger workers providing the tax base to fund this stuff. The age you can start receiving it has already increased to 67 and don't be surprised if it goes to at least 70 before too long.
Ah, the reality of it all. OP's son is 3yo and the dream of retirement is already there.
hey I'm currently in this situation - what questions do you have? p.s. I'm 40 by the way, so maxing out super doesn't make sense for me.
maxing out super is the best thing you can do at any age, the earlier the better, the only downside is it locked up until retirement.
the tax benefits and future tax-free earning will far out weight any other investment you will ever make outside it.
why do you think they cap the contribution because people on high income would throw everything at it and benefit it greatly
they wouldn't invest outside super
yes go hard and go early. however it is something that's locked away for 30+ years so prioritise PPOR over super which has similarly generous tax concessions
there's always an option to withdraw super early if anything catastrophic happens
You pay 15% tax on anything that goes in pre tax, and nothing on the post tax. So roughly 25% benefit to loose control of what you do with your funds. I'm sure it's not the smartest strategy, but I contribute as little as possible to super. I'm very open to be convinced otherwise though. Are there some benefits I haven't considered?
I'll be 40 in a few days. I'm expecting at retirement my wife and I will have the equivalent of a fully paid off investment property worth about $750k atm + 1 house to live in worth about 1m atm, and about 800k in combined in Super (assuming I don't piss her off enough to leave me before then LOL). Why do you think I should focus on increasing that super balance instead of say paying off my mortgage and saving 6-7% rather than earning 2-3% in the super fund.
Why do you think super funds earn 2-3%? Last year most earned >15%
However, agree that most people should pay off non deductible debt ASAP (including PPOR) and then rapidly contribute to super. 'Financially' it may not necessarily be the best option depending on the assumptions you make as to future returns. However, a paid off house provides security and a contingency asset if things go bad plus having no debt provide greater comfort/flexibility.
If you are on the top tax rate, then super provides a 32% benefit (including medicare) during your working life and 0% tax post.
@dtc: if your income + concessional contributions take you over $250K, then you need to pay an extra 15% tax on contributions (called Division 293 tax), so still provides only 15% benefit. Goldilocks window is between $190K and $250K, where there's a 30% benefit.
My variable mortgage rate is 7%. My super grew 9% in the last 12-months, excluding contributions. Any advisor would say you need to figure out how to make your money work the hardest. Hardly any will tell you to focus on super because that doesn't provide them with a revenue stream. If you're projecting $800K in super in 20 years time I'm assuming you'll be offloading your investment property? You need to pace youself to get the maximum benefit from the contribution cap. A couple retiring today can have up to $1,045,500 in assets and still receive a part pension.
tax benefit - apart from the initial contribution 15% (or 30% if you get slugged div 293) the gains within super are not taxed (which is offset by income tax if making concessional contributions to give you a net tax benefit)
anything you hold personally, shares or investment property you will need to pay at least 50% of your marginal rate on disposal after for CGT
average super returns last decade (of course not an indicator of future performance) has been 8-10%
your main risk in super is government intervention with changing goal post on age of access/total cap/concessional cap
@May4th: Not entirely true. During accumulation-phase gains are taxed at 15%. Gains on super are only tax free once you transfer your super to retirement-phase, of which you have a life-time transfer balance cap - currently $1.9m.
If you can structure your other investments appropriately and distribute gains accordingly then you can reduce tax on non-super investments.
You only lose control of what you invest insofar as you don't engage. You're not tied to whatever the default offering is your fund puts you in to.
Also, do the real sums on how your investment properly is performing - at some point, you may find the performance isn't as good as you think (considering baseline 7-8% you would be getting in super or some other investment). My first investment property (I had a half share) we bought for $400K, sold it after 20 years for $1.35m. Should have sold it much earlier when it was cash positive. Over the 20 years average return on investment was about 4.5%pa - well below average super returns. Still a good little nest-egg, but at 47 years old it makes more sense to make that money really work.
Putting money into super drives compounding - primarily because you can't mess with it. Compounding needs time to work, but it's magic so the earlier you can get money into super the better. If you're earning ~8%pa in super, this takes about 9 years to double, and then 9 years to double again, plus once you transfer to retirement it doesn't stop growing, but you no longer pay any tax on the investments within super.
You have to draw a minimum of 4% from your super when in retirement, but if you get your super balance high enough you'll be drawing down less than the growth rate - so you have enough money to live on forever… (keeping in mind the bank of mum & dad may come into play!).
Yes. It does.
Max out super get to $500k. Cut back on work and cruise til 60 when you can access it.
Don't be stupid with your money.
question - lets just say inflation does blow up, unless you're holding your "70k income per year" in cash today and continue to do so, surely your 70k will be index as well right?
for you to be able to support an IP and having to pay it down in 20yrs, i can only assume its not a crappy small little unit so the income that it generates will be indexed as well, not to mention the property worth should also increase.
It depends what inflation does to $70k p.a. in 20 years…..
Did you read the 75 other comments that said the same thing? And the OPs response?
75? man there must be a lot im not seeing
If your planning to retire 20 years from now. You don't even know what you will be doing in next 5 years.
Stick to a 5 year plan and goals. 20 years is way too long. Will you get hit crossing the road, car accident, heart attack working for 20 more years.
You need to accelerate your savings and have shorter plans and revisit them.
Yes, as others have finally said (having deviated all over the place in earlier comments), look at the ASFA assessment. To me their 'comfortable lifestyle' is still somewhat limiting, especially around travel. However other parts of it are a bit higher than I would expect to spend. In any case, you can look at the line items and make an assessment of what you think you will spend; then see what that comes to. Work in current day dollars, forget the whole '$70k in 20 years isnt the same as it is today' - we all get that. But what you can buy for $70k in today's dollars is your baseline; your investments and income will probably roughly track inflation (or above) so it will work out.
Your entire retirement plan and assessment turns on how much you want to spend per year and then how much contingency you want. So this is the key essential first step. Then you figure out how much you need in investments to get that result.
For an income of $70k pa you can also get a pension (at 67 and based on current legislation) and so as ASFA says, you can retire without a huge portfolio and utilise a part pension.
Ignoring the pension (although I think there will always be a pension, but some of the rules might change), the rough rule of thumb is that you need between 25 and 30 times your annual expenditure to maintain an inflation adjusted income for 30 years (google '4% rule'). So for $70k pa inflation adjusted you will need around $85k pre tax (a bit less depending on your age) or around $2.15m to $2.5m in investments; however if the income is split between 2 people (both with the income tax threshold) you need less and for super there is no tax. Hence if you are reliant on super only you will need about (70*25) $1.75m.
All in today's dollars obviously. And ignoring things like reverse mortgages, downsizing etc
You should google up 'financial independence retire early australia' and have a look - there are a lot of articles and analysis. The first few links (Aussie Firebug, Strong Money) are a good start, also look at https://passiveinvestingaustralia.com/