Financial planning for future / retirement / end game

Discussion in 'Financial Planning' started by Alex AB, 1st Mar, 2022.

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  1. Alex AB

    Alex AB Well-Known Member

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    My financial end game is to support our retirement and hopefully to assist my kids to start their financial journey if needed; and perhaps leave anything for future generations when we are gone. It is still a long journey for me yet but I am just thinking how the late stage will look like and would love your feedbacks and advices as many of you are already there; or way further down this road.

    I am thinking of 3 asset types in our portfolio at that time:

    1. Residential properties - need to have a portfolio that is cash flow neutral (or perhaps slightly CF positive in case any extra maintenance cost). Most likely will be PI at that time as it can be hard to keep doing IO. So will need to have cash in offset to effectively lower LVR to make this happen. In another word, I dont have to fund the IP portfolio from my other income, and just hold it to benefit from long term CG. But also dont expect much income from the IP portfolio. Perhaps also small portfolio of 1-3 properties so less headache dealing with tenants, PMs, etc.
    2. Shares (ETF most likely): this is income portfolio. I am thinking of 4% rule for the income, i.e. 1m shares portfolio will generate $40k income per year.
    3. Cash for short term & emergency - perhaps 1-2 years living cost in cash in case dividend reduced; or dont have to sell a lot of shares in downturn; or extra emergency. Cash can be in offset of the IP above.

    I understand there could be other ways such as commercial prop too but it seems a little complicated for me for now so thinking of broad 3 asset types above. This is assumed that PPOR is debt free.

    Any comments, critics, advices would be appreciated.

    @kierank - did you advise something similar before or I remember wrongly?

    Thanks in advance.
     
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  2. MTR

    MTR Well-Known Member

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    I recommend you read all @Big A posts. There are also many posts on FP. I started a controversial thread on this topic, it may interest you?. BA also has good knowledge on structures for this purpose
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Rather than offsetting investment loans could you get a higher return by investing that money else where - potentially more tax effective too
     
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  4. Lacrim

    Lacrim Well-Known Member

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    Sound plan but is $40K enough to cover maintenance, rates, repairs on your PPOR plus your living expenses? Seems very skinny.
     
  5. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    How much income do the 3 need to generate? From the looks of it if shares are going to generate $40k then you will need additional income from the IPs so you'll probably need to be at a low LVR by retirement to increase the cashflow on them
     
  6. Alex AB

    Alex AB Well-Known Member

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    Thanks Terry. You meant for example investing in shares rather than using offset for IP loans? Yes, likely better return, just want a carefree, emotion-minimal portfolios so don’t have to manage cashflow as much, especially if there are some events where they all go down - stocks, properties, tenant vacancy, etc.
     
  7. Alex AB

    Alex AB Well-Known Member

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    Thanks both - I meant $40k is an example with 1m shares. Some people think the dividend / return can be higher but I think 4% over long term is fairly conservative.

    Don’t think we can live with $40k per year. I am not totally sure yet how much we need, especially with inflation when we reach there. For now, I believe $80k per year might be reasonable with no kids expenses at the time, and no mortgage then I will need to have 2m share portfolio; if I want $100k then I will need 2.5m share portfolio.
     
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  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    for example

    I had a client with $500,000 in an offset against an investment property which he solely owned. On the top tax bracket. Spouse on a much lower income. He wanted to buy shares in a trust so would remove the funds from the offset and onlend to the trust.
    If rates were 3% that would mean an extra $15k in tax deductions to him and $7,000 in tax savings roughly.

    The shares might return a similar amount (hopefully more) and that income could end up in the hands of the spouse who might be taxed at say 30% on average $5,000 so that is a $2,000 per year saving just there. The investment might also grow in value (I didn't advise on what to invest in, and don't really care, that is up to him).
    It will also reduce the rate at which the PI investment loan will be paid off.
     
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  9. Lacrim

    Lacrim Well-Known Member

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    Yes...in TODAY'S dollars.
     
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  10. spoon

    spoon Well-Known Member

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    I have been reading various posters on PC. Two I am particularly interested but never have too much detail revealed are @kierank and @Beano. I understand they are both no longer working but their portfolios and incomes keep growing. I understand @kierank is using an IO strategy and SMSF while @Beano through commericals based on postings. But the devil is in the details. If they can share a pathway to their success which mere mortals like me can follow like Google Maps, that would be great... :D
     
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  11. Marg4000

    Marg4000 Well-Known Member

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    Even if people gave you a detailed time-plan of their investment journey, it would not help you. That was then…this is now.

    We are happily retired on a six figure income, after a combination of IPs, shares and superannuation investment. But the financial landscape was vastly different in 1980-2015 when most of our investing was done.

    But today there are options that were not available to us back then.
     
  12. Ruby Tuesday

    Ruby Tuesday Well-Known Member

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    1 m in shares could give you 80k income in 10 years, with 7% growth you could have 2 M of shares yielding 4%. Even less growth, dividend growth alone could give you 80k in dividends. In 11 years another 140k from share growth to tap into. Most people way over estimate what can be achieved in 2 years and way underestimate what can be achieved in 10.
     
    Last edited: 1st Mar, 2022
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  13. Alex AB

    Alex AB Well-Known Member

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    Good point. I will just accumulate slowly for now - don’t have 1m to put in shares now but will keep increasing what/when I can.
     
  14. kierank

    kierank Well-Known Member

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    You basically described it to a T :).
    I would aim for $1.7M in shares, preferably in Super, as the income/pension is tax-free in retirement.

    For a couple with $1.7M each in Super, that is $136,000 pa tax free. Most people would suggle to live on that sort of income, I know, but sometimes one has to make sacrifices :p.

    I feel I have been fairly open with my approach. If those who want to find out more, I would suggest using the Search function. Start with my first PC post in the Introduction forum, then search for my posts with keywords such as "strategy", "IO loans" ...

    My approach is very simple. There is nothing silly or risky such as developing IPs in Australia, buying IPs in USA, ... at all. The only secret ingredient is TIME (to allow compounding to work its magic) and that ingredient everyone has but a lot don't use.

    I was talking to my son a couple of days ago. His in-laws (one is 67, the other is 64) have come to the conclusion that they don't have enough income/assets to retire. So his MIL has taken up a part-time job. My view is that it is way too late - they should have started thinking about retirement 10, 20, 30, ... years ago.

    They fail to use the secret ingredient we all have - unfortunately they ain't they only ones :eek:
     
  15. Sackie

    Sackie Well-Known Member

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    End game is to ensure my family and future generations (unless they massively screw up) will be in the FU position.
     
  16. MTR

    MTR Well-Known Member

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    Mission accomplished:)
     
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  17. kierank

    kierank Well-Known Member

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    Stuff them - it is all about me.

    Look at me, look at me, ...
     
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  18. Sackie

    Sackie Well-Known Member

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    Before having a daughter I thought having all this financial independence is cool. Once I had a daughter....to now know she's set for life and her kids too.....blows my mind. Makes it all more than worth it for us. No boss, exam, life challenge etc will throw her off kilter. It'll all be OK.
     
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  19. MTR

    MTR Well-Known Member

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    Nice:)
     
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  20. Shazz@

    Shazz@ Well-Known Member

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    4. Super

    Whether you go with an industry super fund or an SMFS, start contributing. I started in my 20s and I’m so glad I did, despite lots of armchair advice against it. I salary sacrifice $100 per week (on top of employee contribution)- it’s a no brainer. Even when I retire (and I plan to do this in my 40s) and stop contributing, by the time I am 60, I’m projected to have over $1million.
     

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