Looking for comments on retirement plan

Discussion in 'Share Investing Strategies, Theories & Education' started by OneEyedMan, 12th Jul, 2018.

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  1. OneEyedMan

    OneEyedMan Member

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    Hello,

    Long time lurker, first time poster so please be gentle!

    As others have commented, there’s so much straight-talking knowledge about investing in shares etc in this forum I will be forever grateful to those who give their time to contribute.

    Best tip I’ve seen so far - @Nodrog - $50 for a slab of Guinness - genius!

    Joking aside, I was hoping to get a few comments on our retirement plan. Wife and I are 56 and 58 respectively, both currently employed, combined income $180k and salary sacrificing as much as we can. We recently set up a SMSF and had originally planned to just populate it with a series of ETF’s but were then converted to the way of the LIC and a growing dividend. PT’s book and Super Smart Money have been appropriately consumed.

    SMSF holdings as follows:

    Vanguard Wholesale Emerging Mkts - $39k
    Vanguard Wholesale International Small Co - $20k
    Vanguard Wholesale International Shares - $158k
    ARG/BKI/CIN/CYA/DUI/MLT/WHF/WGB - $114k
    IFL/NAB/WBC/NAB/MQG - $56k
    TLS - $9k
    VAS - $259k
    Term Dep - $10k

    Total = $665k

    Current investments/assets outside super:

    PPOR - $830k (no debt attached)
    Investment property - approx $440k, P&I mortgage, approx $400k owing

    Current plan has us downsizing PPOR in next 12-18 months to liberate approx $200k to add to SMSF. Further concessional contributions (inc salary sacrifice) over same period of about $60k after tax. $30k of personal contribution. Allowing for about $80k of CG/dividends over the same period gives a fund value of about $1m by the time I’m 60 in early 2020. Plan to hold IP until 2025 by which time it should give us a lump sum of about $150k after CGT. By 2026 we will be eligible for a UK age pension of approx $25k p.a. between us. In retirement, we would hold about $100k of cash and the rest in LICs/ETFs plus a few direct shares. We are hoping to retire when I hit 60 or preferably earlier (obviously recognising this would affect the size of our fund and the target income) if possible as both the wife and I have had enough of work.

    In my planning spreadsheet I’ve assumed a tax free environment and the following rates:

    Cash interest - 2.5%
    Growth shares CG - 8%
    LIC/ETF/Direct shares total return (CG + Divi inc franking credit) = 10%
    Inflation - 2.3%

    At a target income of $80k (adjusted for inflation), we would appear to be well set to still have enough in the fund at 2050 to make a either nice bequest to our sons or fund further expenses if we have the audacity to live longer than expected.

    So, just looking for a reality check really, main points as follows:

    1. I’m concerned we have too much bank exposure. Any ideas for a more appropriate mix would be good (this one is all my own work I’m afraid!)

    2. Also concerned that the rates above may or not be realistic.

    Any comments gratefully received (not seeking advice, just comments from others more experienced than us)
     
  2. Heinz57

    Heinz57 Well-Known Member

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    Welcome! Warren Buffett estimates the long term return from US shares to be 6.5% so this is the figure I use for forward planning.(No franking credits for him tho'). Without presuming to give advice because I know nuffink really I think your plan looks good to me and if it works for you happy retirement. We also have a "2020 Vision". :)
     
  3. Mac Fields

    Mac Fields Well-Known Member

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    From a quick look and remembering various posts on the LIC thread, I'm wondering if the shares growth is a little high as an average trend (especially taking any longer dips into account). From posts, the CG and franking credits could be closer to 6-8% but others will correct this.
     
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  4. Silverson

    Silverson Well-Known Member

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    Let's not forget policy risk.
    If Billy gets in and waves his **** stick the franking credit part of your plan may need to be re assessed!
    As for your bank exposure, I personally wouldn't be to concernd, however if it plays havoc on your sanf then may be something to think about.
    Just thinking out loud
     
  5. orangestreet

    orangestreet Well-Known Member

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    Curious as to what your motivations are to sell your PPOR and downsize for what appears to be a smallish amount of gain ($200k). I have seen many colleagues (nearing retirement) in recent times who say that when push comes to shove, they found giving up the family home to downsize was much harder than they thought. Even the ones that moved eventually ended up buying homes a bit smaller (and nicer) but cost almost as much as the one they sold.

    But on the whole, you have done very well for yourself and looks like it is going to be a very nice retirement in the offing for you.
     
  6. OneEyedMan

    OneEyedMan Member

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    Thanks for the comments so far.

    As for the rates to use for planning, this I find is one of the key considerations as even small changes here make huge difference to to the outcome (according to my spreadsheet anyway). Lot’s of different averages around. When I apply my rates to my asset mix I get an average total return of 8.4%. That seemed to sit well with one of the commonly quoted long term returns for shares of 7.5-8% and adding a bit extra for franking credits. Not too worried about any downturns as I think we’re allowing for that with the cash buffer and being prepared to economies when necessary.

    As for the future of franking credits who knows. I just find it hard to believe that BS would go through with it - being portrayed as the guy taking food out of the mouths of retirees would surely have huge political fall-out.

    The decision on the PPOR was a tough one - there’s a lot of ‘sweat’ equity in there along with the financial kind. In the end there were two things that clinched it - there have been some changes in our area that mean it’s not the same quiet, tranquil place it used to be and the other factor is that I think we need the money. It’s adding 25% to the value of our fund which makes a huge difference to how things look in 30 years time. That said, it will certainly take some discipline to liberate the $200k - we have already started looking around at what the next place would look like and it would be very easy to end up down-sizing to a more expensive house

    Keep the comments coming - much appreciated
     
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  7. OneEyedMan

    OneEyedMan Member

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    Forgot to mention - the banks are just there to top up the dividend stream, so maybe we're just being a bit greedy there. Probably more nervous about the Emerging Mkts and Int. Small Co. ETF's to be honest
     
  8. Anne11

    Anne11 Well-Known Member

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    Would the option to rent your house out for 6 years and rent somewhere you like to live which costs less be feasible?

    Might need to crunch the numbers if it makes sense.
     
  9. OneEyedMan

    OneEyedMan Member

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    I can see where you’re coming from but renting is not for us. I like to fiddle and fix and add bits on to the places we live.
     
  10. Marg4000

    Marg4000 Well-Known Member

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    Shorten has already exempted pensioners and part pensioners.

    As far as he is concerned, fully self funded retirees are all multi-millionaires with their snouts in the trough bleeding the country dry. The Labor policies based on envy are quite ugly.
    Marg
     
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  11. clink

    clink Active Member

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    which book is this, please?
     
  12. Heinz57

    Heinz57 Well-Known Member

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    We actually upsized not dowsized from large apartment to a medium sized house. Although freeing up some dollars was the plan we didn’t end up with any change. What we did focus on was energy efficiency because the cost of power is galloping above inflation.
     
  13. b0b555

    b0b555 Well-Known Member

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    clink likes this.
  14. b0b555

    b0b555 Well-Known Member

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    I love the hypocrisy where BS says franking credit refunds are "now unaffordable" but is on board for major personal tax cuts. Surely the tax cuts are also unaffordable...???
     
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  15. Marg4000

    Marg4000 Well-Known Member

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    It depends which demographic he thinks is worth spending money on.

    BS probably thinks us fully self funded retirees (aka multi-millionaires) are all friends of Malcolm and aren’t worth anything as we won’t vote for him.
    Marg
     
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  16. The Falcon

    The Falcon Well-Known Member

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    The products you have are decent. Can I ask why you are nervous? Honestly the LIC basket path is just rearranging deck chairs, you’ll struggle to do better than VAS.
     
  17. Mac Fields

    Mac Fields Well-Known Member

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    and with low fees -
    (thanks Nodrog from the ETF thread)
     
  18. OneEyedMan

    OneEyedMan Member

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    @The Falcon - Just a bit nervous on the basis that I don’t really understand them. They’re just in there as a diversity play and perhaps a Rose-tinted view of what the returns might be. The plan with these and the other International holdings would be to sell these down at optimal times to top up income and/or migrate to more LICs to add to the dividend stream.

    What are your thoughts on the rates of return I’ve used for planning?
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

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    I can't comment and the shares aspect, as not licenced, but on the tax side have you considered upgrading your main residence?

    The main residence is the only major CGT free asset a person can have so if you have a good one it could give you more bang for your buck.

    At the same time as upgrading you could buy an investment property which you may want to move into at a later date. Negative gear it now, and when ready move into it.

    Wait 5 years and then sell the original main residence - tax free.

    In the meantime you could have borrowed against the main residence at owner occupied rates for your investments.
     
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  20. Nodrog

    Nodrog Well-Known Member

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    Not sure about holding an IP with that level of debt close to intended retirement? A potential drain on cash flow in early retirement.

    Likely there will be a need to focus on Australia equities in the medium term to give the required income. If bank exposure is a concern then a mid / smaller cap focused fund to dilute same might improve sleep at night factor. EM, International and Int small cap great for longer term growth but given retirement is desired sooner perhaps focus should be more on greater cashflow in the short / medium term.

    Caution is important to avoid the need to sell equities until the UK pension is available. You are in the sequence risk danger zone so having a generous cash buffer in the meantime might be wise.

    Too many holdings, similar result could be achieved with fewer funds.

    A few major risks lay await such as Labor’s franking credit refund policy and a potential housing market downturn. Hopefully this will be clearer before you retire. No one likes to work longer but the option is there if required.

    Not advice. I know nothing, the only thing I can provide advice wise is beer related.
     
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