Super & Early Retirement

I could well be missing something here but what role does Super play in trying to achieve retirement before the age at which you can access it?

Super appears to be a wonderful environment in which to build wealth but for me, it's locked away until I'm 60. If I want to retire on say $100k pa as income from the assets that I build over my lifetime (i.e. not erode the capital) before 60, then shouldn't the focus be on achieving this aim rather than contributing extra to super? If I'm successful in reaching this aim, then what allows me to retire before 60 would then sustain me for all remaining years.

Again,I may have missed something so would appreciate comments. Thanks

 

Good question

You could potentially eat into your capital now if you know you have a nest egg which can be accessed later.

 

People who advocate contributing to super arent thinking about early retirement. Which means they cant retire early.

 

It depends on your job situation and your risk appetite.
I, myself, am employed by the public sector, so my employer pays 15.4% into my super, so by doing very little else, my super account will be pretty healthy.
Someone who only gets the minimum paid in, won't have enough to retire on, and are betting that their outside-of-super investments will hold up into the future, whether it's shares or capital growth from property.

 

This. Just cover yourself until 60+ then access super till end of life?

 

It ain't about a 1 trick pony...sure for people born after 1964 they can't access Super till 60.

But if you develop multiple sources you can still retire early but you may need to do this. Lets say some has 350k in Super at 50...and have also 4 investment properties worth say currently $2m with a debt of $1m and return 100k with expenses of 24k. Let say you want to retire at 55k..and at that point your super will be worth 550k with additional super till and then no contribution with the expectation it is worth $750k. At 55 lets say the properties are worth $2.6m with a return of $120k and expenses of $30k and a debt level of say 800k with interest payment of say 40k pa

That means at 55 you will have a passive income of 60k. You could potentially sell one place and key cash to live to say live on 80k (20k in cash drawn from the sale )...then at 60 using the 4% rule you can also draw down 30k in from super. At that point you should have about 60k just from rentals...so a combined income of 90k with virtually no tax..if split with 2 people.something to thunk about.

 

Is this realistic? Who has enough income to both build a portfolio and contribute extea to super, and then is willing to live on 50k?

 

Or until it runs out and then the pension!

 

Many a public servant!

 

Perhaps....you need to do more research...most people who retire will not do so on 50k per annum.....that is a pipedream.

I laugh when people tell me that they need 100k in retirement...that means that they will need $2.5m invested in assets growing at 5% per annum and drawing down 4% per annum.

This is in addition to a fully paid off home...a lot harder than people think..but not unachievable. For example if they live in the lower North Shore of Sydney the average home is 2.5m plus..so selling that and downsizing to something for say 1.5m frees about $1m..and a litte super say 500k plus say and investment property with 400k just about gets you there....but may take you to 60 to achieve this...

 

It simply depends on how much they need to live on now - if they aren't earning $100k at present, why do they require $100k upon retirement? If you're no longer supporting kids at school ie empty nesters, house paid off etc, you won't spend as much.

As @sash points out, you only need to sustain yourself until your tax free super kicks in - so having external income streams sure helps, whether you need to consume all of this capital between early retirement and super release is a matter of planning.

 

Are you with NGO @ShireBoy ? I am in public sector too but my super is only 9.5%

 

Not true

 

I love Super. My partner and I contribute the maximum allowance per year. The way it's racking up we'll be able to fund a half decent retirement purely on the Super.

What that means is that to retire early we only need to create enough wealth to get us from the age at which we retire to the age at which we can call on the Super.

Psychologically, that feels a lot easier that trying to achieve an early retirement that needs to last us into our 90's.

 

Our strategy was something like this:- contributed the max to Super each year to buy shares, paid off our PPOR as quick as we could, built up an IP portfolio outside of Super and created multiple income streams to generate cashflow.

Seven years ago, at the age of 55, we retired. The mandatory 4% pension from our Super generates more tax-free income than what we need to live on and travel. We get a 25% pay rise in a couple of years when we hit 65 (mandatory pension going to 5%).

The property portfolio continued to grow in value although income is fairly stagnant at the moment. We have bought more property in $ terms in the 7 years in retirement than in any other 7 year period of our lives. The portfolio is currently NG (planned) and the shortfall funded from our pension excess.

Once we complete our re-structuring in the couple of years, the portfolio should generate around $60K net income (this will be tax-free once we hit 65).

So, it is very doable.

But it takes time (we started in 1992, 18 years before we retired). It takes a strategy, a flexible plan, regular monitoring of progress, taking corrective action, etc. It takes focus, determination, resilience and lots of hard work.

But, I can tell you, the view from our financial destination is absolutely fantastic.

 

@kierank said:

Will be an even better view when you buy the Skyhome.

 

Of course one could just contribute the mandatory minimum into Super and focus entirely on wealth creation outside Super if much earlier retirement is the goal. Then once retired and eventually closer to being able to access Super some of the assets could be progressively transferred into Super using Personal Contributions to minimise CGT.

Note a couple can earn at least $36K tax free in personal names. Potentially more when over 65. It doesn’t all have to be in Super to obtain a tax free income.

So if say $60k pa is all you think is needed when retired and able to access Super then $36K tax free can be sourced from investments in own name and the other $24K from Super tax free.

For someone content to retire around 50 - 55 they might put just about everything into Super but keep enough capital with interest aside to cover living expenses from 50 / 55 - 60 when Super kicks in.

There’s countless strategies ranging from simple to very complex.

 

SImply an observation. Curious why super is generally lumped under "Other Asset Classes" when it is probably deserving of its own sub-forum. There probably is one but I cannot be bothered looking. No matter it's all due to ennui now my day's work is done.

 

You're right, there is no other super sub-forum. At least not in any of their descriptions. Something to suggest to Simon, perhaps in the Property Chat 2.0 thread?

 

Because the forum owner won’t let us have separate sub-forums. Simon considers this a Property Forum and would rather we use his other site, InvestChat.com.au, for non-property related discussion. I tried the other site for awhile but do not like it at all. I avoid it nowadays. So I just accept what is available here even though we aren’t allowed sub-forums to keep discussion more orderly.

Ennui setting in and can’t get hold of Four Pillars, crikey @SatayKing you are in a bad way.