James Wrigley, chief financial advisor at First Financial, answers money questions from readers every Wednesday.
Hello James,
We are a couple, both 51 years old.
Our children are 19, 17 and 15 years old.
We both worked very hard at an average income of $80,000 to $50,000 to get to a good place.
We own our home in regional Victoria, have about $150,000 in savings, of which about $90,000 has been set aside to help our children get a head start.
We both put about $200 into super every two weeks (current balance is $570,000 and $270,000). We aim to increase that amount once school fees expire.
We saved hard along the way without taking any risks, and are still not taking any major risks. Would you recommend a better path to moving from a “good” to a “great” position and looking at a retirement in the early 60s that wouldn’t be a concern?
Additionally, our super is currently in high growth/higher risk. Would you recommend leaving it there until the mid-to-late 50s?
Thank you,
Brendan and Christine
Hello Brendan and Christine,
Congratulations on what you have already achieved; a paid-off house at age 51, great super balances, and raising three kids on an average income is fantastic. You can be really proud of what you have achieved.
A ‘good’ to ‘great’ financial position is open to interpretation. I would encourage you to focus on what great means to you, and not someone else.
If we look at what you currently earn after taxes, the person making $80,000 a year would receive $60,000 after taxes, plus the salary sacrifice you’re already making.
The other making $50,000 a year would net about $40.00 after tax and salary sacrifice.
So right now you have $100,000 in spending money that you use to run your home, including supporting your three children.
Over time, you will hopefully no longer need to support them financially, leaving more money to spend on yourself.
For the purposes of this column, let’s call it “great” if you can replace your current after-tax income in retirement. Not many people get to do that, so I think that would be a great outcome.
If you visit the Australian government now Moneysmart retirement planner and fill in your details. Their calculator indicates that if you keep doing what you’re already doing, you can probably retire in ten years and spend $96,000 a year (adjusted for inflation) into your early 90s.
In the first years of your retirement, you pay this entirely from your pension. From the age of 67 you will receive an old-age pension and you can partly finance your pension income yourself and partly from the pension.
The one major downside to the retirement planner on Moneysmart is that it calculates what you can afford over time, but you will also use up all your super costs by the time you reach 91. Some people are fine with that, and others want to leave money for their children. If you are the latter, you will need a higher starting balance.
How do you improve it? Save more (which you say you plan to do) or work a little longer. Without changing any other inputs (such as your savings rate), working until age 63 instead of 61 increases your expenses to $101,500 per year. If you increase the €200 per fortnight to €400 per fortnight, you will increase your expenses even further.
As for your investment option, while I can’t recommend specific investment options in this column, it is generally considered a good idea to move from high growth back to equilibrium in the last two to five years of your working life. You can do that in stages, going from 100 percent high growth to 80/20 high growth/balanced, 60/40, 50/50, etc. over time.
A word of caution to you and anyone reading this: you need to maintain some ‘growth’ exposure during retirement, otherwise you probably won’t earn enough returns on your super balance to make it last 30 years.
I hope this helps.
James
Send your questions to James thewealthbuilder@dailymail.com.au
James Wrigley is a representative of First Financial PTY LTD ABN 15 167 177 817 AFSL 481098
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