On FIRE

I know of one person who cashed in their property winnings about a year ago, loaded up on shares and is now retired at age 40. Yes there was a CGT impact, but that was reduced by selling progressively starting in their first retired year of low income. Leaving it in property would have meant greater asset value but much lower net income, which would have killed off any idea of retiring early.

 

Forgot to mention that CGT only comes into play if you sell.

 

For us, the strategy is twofold:

1. Create passive income. This is different for everyone but our strategy has been property for accumulation phase & dividends/super for retirement. Noting that they're not mutually exclusive.

2. Minimise ongoing cost of living. This has been more effective than we first thought it would. We have capped our PPOR cost at a lower % of assets than most & selected very deliberately to reduce ongoing expenses.

IMO, FIRE requires work on both columns of the ledger otherwise you're only solving 1/2 the problem.

My 2 cents

 

Property, shares and super for me.

 

Retired on rental income a couple of years ago now. Slowly funneling some into the sharemarket, but still predominantly property.

 

I tried to show that even after taking into account CGT and other selling costs you could still have a much better income:

Strategy: Selling Property on Retirement to buy shares Strategy: Selling Property on Retirement to buy shares

 

While much discussion/to'ing and fro'ing is on these threads, reading the posts, many said that they use property to build equity/CG, then sell down and transfer to shares for ongoing income - that's my approach.

Why Shares are Better Than Property

Why Property is Better Than Shares

 

I'm interested if you were able to foresee what your costs may/would have been after retiring.
My partner will retire in 3 years, and I will cut back on work at the same time, so I have done budgets for the next four years (into first/second year of retirement) but I can't see any big places to reduce expenses.

 

Well, I've chosen an extended semi-retirement over the traditional retirement as it has brought it forward by 20yrs. That's a lot of me time at an age I can really enjoy it.

To do this I've split our cost of living into 2 parts. Firstly "base cost" and secondly "discretionary cost" as this is logical for semi-retirement planning.

Our base costs are largely fixed (increasing by real inflation) so we're able to forsee this with good accuracy. It includes all household expenses (utilities, insurances, health cover, food, bills, fuel etc)
IMO to semi-retire you need a passive income of this amount including 10% variation margin as a minimum. We've also got a small discretionary buffer for weekly wants ratherthan periodic wants.

Our discretionary costs fluctuate & essentially this is the "semi" part of the "retirement". This is where I will do some paid work if I really want a new toy, an overseas holiday or a home renovation etc.... Currently this averages out to be 1-2 days a week but is not done on a weekly basis. Ie. Might work for 1 week & have 2-3 weeks off.

The big place to reduce costs for us was exactly that.... our PPOR. We live in a relatively modest home in rural residential.... very very deliberately. Why? Semi self sufficiency, lower capital expense & lower council rates. Those 3 equate significantly to ongoing cost of living & add greatly to quiet enjoyment as I spend a lot of time at home.

 

Just continuing to increase cash flow, retired now 12 years.

Refinanced a $1.18M LOC (AMP), which was reverting to Principal and Interest. thanks to APRA
Now with new lender (Resimac) back to IO for 5 years. If I could not do this I would be up for an additional $3000 per month.

I would be interested to know whether this change in lending policy will impact on those that have retired. I suspect it will, and this needs to not be ignored, its a big one and will kill cash flow

Strategy is still focusing on cash flow primarily and growth is a bonus.

I am not promoting USA market to anyone here, but just to give you an idea on my last deal and how the numbers stack up

$5100 - reno


$36,000 - Purchase
$1000 - Rent per month
$60 insurance pm
$1200 - County taxes
$500 - maintenance
$960 - property management

$8620 net income pa (28.57% gross yields)

 

Wonderful, thanks.

Reading various posts, people have found that some aspects of discretionary spending reduce as you're not making up for what you've 'lost' by working (FT usually). Eg, you may not go on as many holidays as your not needing to have a break (and escape) from work, and you can build in the restorative things that matter to you each day etc, you have time to cook and exercise, reducing costs there, and as you mention, you also have the time to build in self-sufficiency if you are able and willing (would love to get the orchard and veggie garden fully going again....)

 

In retirement/semi retirement, you wont be spending on commuting, compulsory grooming, business clothing or safety boots, self education and probably as much junk food. You will most likely be in a lower tax bracket or not paying any tax at all.

Discretionary spending for travel is different as you would have probably saved up for it anyway, and once travelled, it is not an ongoing expense every year. You have time on your side so you can take advantage of out of season bargains and not pay for peak season premiums if you had previously been forced to travel at certain times of the year to fit in with someone else's schedule.

 

Thanks for the responses guys.

Very valid points mentioned - particularly that income/assets is only one half the of the FIRE equation and the other half is expenses. In fact, I think it's fair to say that expenses is the more important category to focus on.

It seems to be common among these threads that people have started with property and eventually made a partial/full transition to dividend paying shares.

Would be interested to see if anyone had done some modelling comparing retirement projections of pure property vs property with transition shares vs pure shares (with leverage using OO property only).

 

Can you elaborate with some rough numbers etc? Interested to know for my own situation.

 

Thanks MTR. Do you know what the tenants do for a living/their income? Just trying to understand the demographic of tenants in the area.

 

I have property managers that screen all my tenants, there is a specific credit score in USA I think its 650, they must meet prior to being considered as a tenant.

They also have a data base similar to Australia where you can review any lates fees, tenant defaults, tribunal cases etc.

What they do for a living will vary, I have government workers, part time university student, Retail workers.... The rents average now around $1400 per month. Buying price was around $35,000-50,000 in 2011/12

To be honest with you in Atlanta some of my tenants have been in my properties since 2011, these are the ones you want, career tenants.
Atlanta is a landlord market where rents have consistently risen and tenant demand is high.

In Detroit just starting with this market, similar to Atlanta in terms of screening, but I will tell you more in 12 months, so I can give you my honest update on how this pans out.

MTR

 

I can understand Atlanta, but the brutal winter conditions in Detroit is a concern when it comes to repairs - outside of tenants, the market etc.

 

Yes
It will come down to cash flow vs maintnance vs growth
Its a numbers game, price paid for property, and whether is a rising market .... all these needs to be considered, not just cash flow or climate, many variables

 

I don't know their specifics but it was something like $1M+ net equity being released over a couple of years to smooth out CGT and to coursely DCA into shares. They are still retired so it must be working out well enough.