Retire at 60

We don't have kids but I do get why people hold onto assets and pass down the generations. I know for a fact that if we both popped off extenfed family would sell all our assets, they live overseas and aren't into investing.

If we sell 1 property every couple of years for the next 30 yrs releasing a few hundred ks each on top of rental from the others and eventually super I think we may be able to scrape by. Wont be easy though lucky I quite like beans on toast.

 

Everyone has their own idea of how they want to spend their retirement years. I would prefer to see the world and eat/drink the best food the world has to offer. Others are quite happy to stay locally and live off their self sustaining farm.

Each has its own number/net worth you need to fund the lifestyle and neither answer is right or wrong just different.

 

You've taken a comment completely out of context... & one that is factual at that.

Do you know why the mandatory super drawdown starts at ~4%...... because it is historically sustainable without eroding equity.
Of course capital gives you freedom... noone said otherwise. As for net worth, it isn't as black & white as suggested because cashflow is also critical. I'd rather be cashflow rich (secure passive ) & asset poor, rather than asset rich & cashflow poor. Each to their own. .. I'm enjoying not needing a J.O.B. from early 40s so there must be something in it.....

 

Nope, you're doing it all wrong now off you pop back to work for another 20 years. If you're lucky enough to be still alive by then you can eat Oysters every day for breakfast and have gold plated loo seats in an effort to spend your 1m passive income

 

Again, travel can be expensive if you have kids. For a 'retired' couple there are many very cheap accommodation options including Abnb, home exchange, house sitting etc. If you can do accommodation a bit cheaper you should be able to comfortably splash out a bit on eating out. As for a vege patch/farm, I find groceries very inexpensive to buy and haven't needed to resort to this option but perhaps someone on a lower passive income might. Not that it matters, presumably you could choose either get a job or have lower passive income and grow vegies etc to keep cost down. Nice choice to have in my book.

 

Travelling is different for each person too. I had a much better time travelling with not much compared to having a bit more and going along with my friends' expectations - which I did do at times.
It's nice to have a clean bath every so often but apart from that it's a much more personal experience in so many ways when you're 'poor'. Probably the difference between travelling young and travelling old. But I've never got much joy out of a snazzy hotel room or admiring the green hills from inside a car.
The more frugal options look like a lot more fun - homestay, house sitting, caravaning (cheap? ), house swapping, hostels, etc.

 

We did a few home exchanges a few years ago in Europe and Aus. Stayed in beautiful homes with all the comforts. Only cost was getting there. The options seem endless, you just need the time to be able to take advantage of them.

 

Please explain. I do not understand this comment.

Certainly do. And I know that the minimum payments increases (from 4% at under 65) as one ages to 11% (at 90) and 14% (at 95) with the sole purpose to erode more and more equity as one nears the end of their life.

If one wants to completely erode equity, one can withdraw 100% at any time .

We will have to disagree on this one. I would rather be asset rich and cashflow poor as one can easily and quickly turn assets into cash at any time if one needs more cashflow (and become cashflow rich).

Whereas, if one is cashflow rich and assets poor, it is not easy nor quick for one to turn cashflow into assets if one needs more assets (by assets, I mean net worth).

Obviously, being assets rich and cashflow rich is even better.

Each to their own. Enjoy your journey.

 

For those with kids and have plans to retire and see different parts of the world (eg spending 6 consecutive months overseas etc) ..... how would you do it if the kids were between the age bracket of 14-19 when you wanted to do the long overseas trip?

Don't think i would feel comfortable leaving them on their own to fend for themselves.... ie partyyyyyyy

 

Ok.... I'll explain. 1st comment "would require $1.5M in super".... they only need such a large amount if conforming to my first post. That is, they could do it with less if they used a portion of the capital from day one. Obviously this reduces how long until the $$ run out but for most people, they won't live to spend it if they stay at 4% ie. just take the minimum as you originally stated.

Selective editing removes the context.... My comments here were very clearly "cashflow rich (secure passive)" <-- see that bit in the brackets? It provides very critical context..... I'll explain.

Category 1
Let's assume a person decides they need 50k /yr secure passive cashflow but they have let's say $150k /yr secure passive cashflow i.e.. they are cashflow rich compared to their own assessment. Such a person probably doesn't really care about net worth. It is largely irrelevant because they earn multiples of what they decided they need to live comfortably.

Category2
Now consider the person unable to pay the bills/rates on their 2.5M PPOR because they have been living like pauper due to being cashflow poor & asset rich...... Their journey has been one of daily financial struggle & going without because they have limited cashflow.

I'm happily in Category 1 in my 40's....... I have 20+yrs of not needing to go without to service a stupidly large mortgage or the financed vehicles in the driveway, just to keep up with the "Jones' ". I have 20+yrs of not needing a JOB, not having to commute to the office everyday, being restricted in when I can take time off or go on a holiday, missing birthdays or answering to someone else.

Being in a secure passive cashflow position gives you TIME.... being 60 with millions in assets can not buy the time I now enjoy (or those like me)..... The Time Bank is not open, no matter what your net worth is.....

So that's where I'm at, & I'm very, very happy to disagree on this point. In a very civil way of course. I intend no disrespect nor do I think having a large net worth is a bad thing. Not at all.

I just place a higher value on my time than I do my net worth..... each to their own indeed.

Enjoy the journey

Indi

 

I will have to disagree with you here. In my eyes, $1.5M in super is not a LARGE amount. A nice amount but I wouldn't term it large.

But they can't stay at 4%. The minimum increases to 5%, then 6%, ..., all the way to 14%. As people age, their risk appetite lowers and, sooner of later, they will start eating into their capital (which is exactly what the Government wants).

One of the biggest fear for self-funded retirees is "Do I have enough money in super to pay me a pension that will keep me in a lifestyle that I desire?" I know people with $100K in Super who believe they do and others with $4M in Super who believe they don't. IMHO, the first group are more wrong than the second.

I retired at 55. I am now 60 and I hope I will live (in good health) until I am at least 90 (my mother is 88 and I would love to outlive her). So, my SMSF has to last at least 35 years, maybe even 40 years. With medical advances, maybe even 45 years or longer. I would hate for it to run out and for me to go on to the Aged Pension, all because I chewed into my capital too soon.

Can you help the uneducated like me:- How can one earn $150k/yr secure passive cashflow if they are assets poor (or have low net worth)?

If a person was in this position and they wanted to change, why wouldn't they sell their $2.5M PPOR, buy another for $500k, quit their job and live off the $2M. If their cashflow needs were $50k/yr, they would live off this for 40 years (ignoring inflation, income, etc).

I am in Category 3. That is, cashflow rich with way more than my needs (although I am learning to increase my needs ), net worth rich (based on my needs) and even more asset richer (I have significant debt which reduces my assets to my net worth and I don't have to work).

As I stated in a previous post, being in an asset rich position, gives one flexibility. The Flexibility Bank is not open either, no matter what your cashflow is...

I believe we all have to make the Time vs Flexibility trade-off. I have traded in some of my time to increase my flexibility and I am glad I did.

I am just a little indifferent to your POV.

 

There are many ways. Royalties, IP, copyright, licensing, franchising, defined benefits, high return investments (>10%), trail commissions, Apps, software...... etc... etc.....

For the record, I do not earn 150k/yr passive income (not even close) but I would identify as a Cat 1 person because I have "enough" to retire enduringly in a "comfortable" lifestyle (as per the generally accepted definition). That said, one could get there with a net worth far less than many multiples of 1.5M.....actually, you don't even need 1.5M!

Mark Zuckerberg created a Billion Dollar empire from an idea within a college dorm room.... please think about that. Traditional views on assets are being challenged in the digital age, where an idea can be transformed into large amounts of capital or cashflow very rapidly & from a net worth of zip....

https://fortunehub.net/2015/11/06/9-self-made-teenage-millionaires/

 

When you look at averages it's a HUGE amount. It will produce an income stream way above the median salary; and tax free.

 

Royalties - one needs an asset
IP - one needs an asset
Copyright - one needs an asset
Licensing - one needs an asset
Franchising - one needs an asset
Defined benefits - that is an investment vehicle owning asset(s)
High return investments (>10%) - these are assets
Trail commissions - never heard of anyone retiring on trailing commissions
Apps - these are assets
Software - that is an asset

So, all of your examples (except trailing commission) are either assets or rely on an underlying asset to generate the passive income stream (even trailing commission would be considered an asset by some because, in some countries, one can sell them). If your examples generate $150k/yr secure passive income, then they are valuable assets. If one uses a capitalisation rate of say between 3% and 4% (I am not an accountant but I wouldn't deem this to be unrealistic), then these assets would be valued at $4M to $5M.

So, in my uneducated opinion, these are not examples of someone being cashflow rich and asset poor. In fact, they are cases of my Category 3 - cashflow rich, net worth rich, asset rich.

A comfortable lifestyle is deemed to be $60k/yr (after tax) and owning one's PPOR outright. if one allows $500k for one's home, one needs around $1.5M in secure investment assets debt-free (whether they be shares, IP, etc) to generate that level of income. If one invested in cash, one would need $2M (assuming you earn 3%). Of course, taxes will reduce this level of income (but I am ignoring them for simplicity). So, for a comfortable lifestyle, one needs between $2M and $2.5M in debt-free, secure assets to sustain a comfortable lifestyle in retirement.

A lot of people start working life with a net worth of zip. I was one. When I started my first job in 1977 (after finishing Uni), I had $50 in my wallet (and that was from my parents to buy myself a 21st birthday present).

But we are not talking about where people started their working life. We are discussing what people need to fund a sustainable comfortable retirement when they leave the workforce.

Mark Zuckerberg is not an example of your Category 1; he is a great example of my Category 3.

 

Why would anyone aim to be 'average'. I am not even aiming for 'comfortable'; after working hard for 30 years, I am aiming for something better.

Most people work for at least 40 years (say from 20 to 60). I bought my first IP in 1992 for $125,000 (partly in my SMSF but that is another story). Today, after 24 years, it is worth at least $600k. That is, 6.8% growth. Nothing spectacular. If the IP maintains this unspectacular growth for another 16 years (total of 40 years), it will be worth nearly $1.75M!!!

This is just capital growth. I have ignored 40 years of net rent, super contributions, inflation and taxes. This is just 40 years of capital growth.

Most people on PC would not consider one debt-free IP as a HUGE investment portfolio. $1.5m is not HUGE.

 

@kierank Ok I'm completely wrong..... I better start looking for a J.O.B. for the next 20yrs, so I can increase my net worth so that I can afford to retire.... oh wait, I already can.... I must be worth many millions to do this in my early 40s.... nope.... just checked.... sigh...

FWIW, I'm sincerely happy for you. You've done well, investing over a long period, working hard & accumulating a high net worth & cashflow. You are proof that such a strategy works & can even allow retirement a few years early. You are geniunely a success story.

It's just a shame you can't understand what has allowed a few of us on PC to do it a different way. I'm only semi-retired but I passively earn more than many retirees I know ...... so if I wanted 40+ yrs of golf, fishing & brunches like they do, I actually have that option.

Perhaps TIME could be deemed an asset.... if so, my net worth is HUGE!

 

I didn't say what did was wrong and what I said was right. What I said was the retirees have to trade-off time and flexibility. You have gone for time; I have gone for flexibility.

If you want to go back to work, that is your call. You will lose time and gain flexibility (as long as you use the income wisely).

What I have done is nothing special. Anyone can do what I did. All one has to do to develop a plan, execute it, give it time, monitor it and make changes if the plan is not working. Some people will work this out early in their working life (like you) and others will work it out later in life (like me - I was nearly 40 when the penny dropped). What both of our stories seem to show is that 20 years is enough time to implement one's plan, although some will get there earlier, some will get there later, some will never get there at all and some will never develop a plan.

But I do understand. There are many ways to skin a cat. What concerns me is that I have seen a number of people who retired too early and without sufficient net worth to only start consuming their equity to fund their lifestyle (some a fairly modest lifestyle, some a slightly more comfortable lifestyle) and then realise too late (in their late 60's early 70's) that they are destroying their capital/net worth/cashflow. The only option is the Aged pension and a lifestyle way lower than they were envisaging. They have little to no flexibility.

I believe I have a duty to point this out to PC members. This is why I am passionate about people understanding the value of net worth. I am so driven by this concept that I measure my net worth every 3 months and plot it on a graph (which I have shared on PC). I have been doing this for 14 years and, even in retirement (5 years) with the fantastic lifestyle I live, my net worth is still increasing. This tells me that my lifestyle is sustainable and that I could even raise my lifestyle even higher. That to me is flexibility.

 

@kierank thanks for a healthy discussion!

I think it shows 2 perspectives that both have pros & cons. Hopefully it helps others understand some of the tradeoffs required of each approach & the similarities!

Others have done far better, far quicker & perhaps even far easier..... I fully agree that these discussions are never about being right or wrong but so we can all share & learn from each other's experiences.

Enjoy the journey

Indi

 

I know a few people at work who enjoy fine foods, I suppose you'd call them foodies. They make a point of visiting the best restaurants and do this regularly at home and wherever they go on holiday. I put on a smile that makes my face hurt, to fit in. They're very lovely and talented people, but the conversations about food, shoes, handbags, schools bore me to death. Been out a couple of times for meals with them. If I'm lucky there's one thing one menu I could force myself to eat. Usually actually I pay a lot of money to eat something that I have no desire whatsoever to eat. I'm pretty sure these people have very little left at the end of the month other than credit card bills. Not criticising them in any way, they work hard and pay for what they want and they definitely deserve every happiness. In any case this is money I don't need to add into my retirement budget.

I think there are a few like me who have a modest/boring/very restricted diet maybe, who would genuinely rather eat a simple meal than over priced raw fish or whatever else. It's not a sacrifice, just a preference. Not aiming to be average in any way but just someone who enjoys very average things in life, beautiful countryside on a sunny day, a big walk to get exercise and a nice (simple) meal with a nice glass of wine or two. This can be very inexpensive so not sure what all the need is for designer brand wines, but that would be my palate again.

If you feel like me there's very little motivation to work until 60, if you're not interested in living in cities, don't need to buy a house in the middle ring or whatever, don't need to subsidise kids or grandkids. Everyone is different. Just gets on my nerves though when people (perhaps to make themselves feel better for working late in life, making sacrifices or whatever) try to say that people who leave work early, with less net worth are being average/ at risk of running out of money. We can still run spread sheets like anyone else. Our assets presumably still growing. Rather than do voluntary work and be patronising those around us with our wisdom, we could actually get a job if money does run out.

Who knows, nothing is a given. Heard of many, many people who have the best plans and the best spread sheets who don't live to enjoy it. I think if you have a bit of intelligence/self drive, enough cash flow to cover basics and a bit extra, don't need status affirming stuff then who needs advice from someone with completely different wants and needs. Just my 2c.

 

Whether you retire or not, you have the option. You have financial freedom. I think the discourse has changed a bit on the forums in the last few years due to changing economics but I might be wrong. Less bluster and grand-standing these days?
(I hope you do more than play golf. I know keirank does worthwhile volunteer work - the mark of a truly rich person. In any case, the choice is yours.)
Some people are still attached to certain numbers and ways of doing things and the rigidity makes them sound old before their time. They would like to think that the majority want to emulate them. They probably emulated someone from a different time too. Yes they are successful. Well done. So are others.
The longer I hang around, the more clearly I see who is good at this stuff, who is average (most) and who is lousy. Basically, as always, humility and moderation allow for better decisions.