Starting out when you’re almost 50 and missed the boom

Hi all,

I’m keen to hear suggestions of ways to get ahead. My wife and do not own an IP or PPOR. After many years on one income and unable to get ahead, we are now earning a combined income towards 200k and are saving about 2.5k per month specifically for a deposit (or other long term investment). This saving is currently at about 95k.

Our most basic goal is to own a home when we retire (we are 47 & 46 years old). Buying where we choose to live (Blackburn/Box Hill Vic) is not realistic. We do however have the urge to buy somewhere we could reasonably move into if tenants or our rental options don’t work out. This means limiting ourselves to eastern/south east suburbs of Melbourne. Or maybe buy the house we think we could retire into. We had been thinking about Frankston but can’t yet afford something we’d consider reasonable. Looks like we’d need to be getting to around 650k for that. We’re also a bit risk averse due to our stage in life and lack of a PPOR so don’t want to over extend ourselves.

How bad is this approach? How much better could we get set up for retirement if we broadened our perspective on where to buy. If the Melbourne market is flattening now, is this a reasonable time to sit tight and keep saving without having to worry about the market outpacing our saving efforts? Is it reasonable to aim for a couple of IPs by retirement (one to live in and one for income or to sell)?

Maybe this is all a big rambling question, but I’d appreciate any thoughts or suggestions about building a strategy to help set us up well for retirement (for what it’s worth, we’re also both salary sacrificing into super).

Feel free to throw any suggestions at me or question any of my thinking. I’m open to any input right now.

Thanks.

 

Say you do buy a place. What are you going to live on in retirement?

Your after tax is like 150k, and your saving 30k? How did you live when you were on lower income?

Fact is, you dont have much time, and your lifestyle and expectations are too high for your resources. Face the music and live frugally.

 

Sorry if I missed something, but you earn $200k and are saving only $2.5k per month? Hubby and I put away almost $10k pm when we earned similar. Where is your money going?

 

Super. Plus whatever else we’ve put aside. Or from IP2/3 if we go that way.

I should have added, we’re also keen to not put every spare cent into property. We will continue to increase salary sacrifice into super where possible and keep other investments outside of this IP.

 

Buy

Given your current savings and depending on your place of work and how you want to commute, I'd consider buying either around Werribee or Clifton Springs (where you can either buy an established or go with H&L package) or somewhere nicer, say in Phillip Island (good place to retire). After buying first property, you can consider saving for an IP. Frankston is good, but will be more expensive than W and CS. Cheers

 

Its hard to win a race when your horse has two hobbled legs. Especially when your the one who hobbles the horse.

 

Fair question, and this is something we’re also addressing. Some of the rest is going to super and being put aside for other medium term goals. We don;t live particularly cheaply and I think we’re going to be able to tighten things a bit, but when I go line by line through our budget I don’t see how we could put aside 10k without some pretty significant lifestyle changes for us and the kids. But hey, maybe that’s what we need to do given where we are.

 

Sorry, I’m not sure what you mean. Is that about not saving enough or about not wanting to put everything into property?

 

Thanks

 

Be honest with yourself here. Your pretty old for your first ppor. People your age are usually upgrading ppors with a hefty deposit from a tax free sale. Being on low income before is an excuse. People do it all the time.

Super is ok but theres no leverage and not available until retirement.

Just on the numbers youve given, your spend is too high for your goals. So lower your goals, or make some sacrifices.

 

Yup. Fair point. We do need to take a good look at our spending.

 

Like the others, I'm very concerned with the fact that you're only saving 2.5k/month even with combined income. Did you increase your spending after your wife got a job? I wouldn't suggest you get a PPOR as you could end up not saving anything each month. Buying a neutral to positive geared property might be your best bet but it'll probably have to be Western or Northern Melbourne if you want to keep it in Vic.

I would expect that your savings should be at least double what your current amount is so perhaps the best step is to go through your budget with a fine tooth comb to see what you can slash before seeing how you can improve your income.

See below for my personal spending p.a. (just multiple the below by two for both me and my wife).
Hot date $1,040.00
Groceries $1,560.00
Coffee $624.00
Private health $1,536.86
Rent $9,100.00
Commuting $2,132.00
Internet $390.00
Mobile $637.00
Electricity $650.00

We are doing the bare minimum just so we can reach financial independence.

 

Pretty judgemental - given you don’t know the OP! And lot of us will be working until 70 or longer!

I agree, however, that the OP could save a bit more on that income. If rent is expensive, might need to see if that could be reduced.

 

Something else to think about, how secure is your job?

 

Thanks everyone for your input folks. Clearly, we need to reign in our spending, although looking through our budget I’m not sure where we are going to find another 2.5k per month, but will need to do what we can.

Assuming we could turn that 2.5k saving into 4 or 5k. Then what?

I’m well aware that we are not in a great position, but really want to figure out the best way forward.

 

Just noticed, tax on 200k is 63k with the medicare levy leaves 132k net. That would be seriously nice work to save 120k of it. I’m impressed.

 

We had subsidised rent, salary sacrifice, other rental income which helped, but don' t get caught up in looking for holes in my story. The point is $2.5k per month savings on your salary is going to be a very slow road to wealth. Also, buying a neg geared ip in outer Melbourne could take 15 years to show you any cash flow. You need to look for something you can make multi-occupancy or subdividable, or both and you probably need to get more frugal as you'll need to put your own cash into these deals upfront, same with a ppor. Not meaning to sound harsh but if you really want this then you'll need to do something very different to what you've been doing.

 

Thanks, this is helpful.

Point taken about being more frugal. We are well aware of this and are a bit shocked when we look at how much we’ve spent. Have suffered from some lifestyle creep as salary has increased and the kids are also costing more as they age. But we need to do what we need to do.

Thanks for the reality check.

 

You're calculating a single income. Tax rates are different.

For 2 people on $100k:
$100k income has a $26.5k tax Inc Medicare.
That leaves $73.5k.
X 2 = $147k

 

Don't beat yourself up, but now you know this is your problem you can choose to do something different. Whatever you do, don't listen to anyone who tells you to buy a neg or neutral geared ip as this will do nothing for your cashflow unless you can convert it to cash flow positive.