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Ask Paul: We have invested $2.23m, can we retire comfortably?

Ask Paul Paul Clitheroe Can we afford to retire comfortably?

Q. I am 64 and my wife is 63. We intend to retire in two years.

We own our house and have two investment properties yielding $750 per week. We have a combined super of $630,000. We do not have any outstanding debts.

We have invested $50,000 in shares and $50,000 in savings. We are both employed and our combined income is $160,000 before tax.

We salary sacrifice $15,000 each into our super.

Can we afford to retire comfortably? Or should we sell our investment properties, the current value being $1.5 million to fund our retirement?

Your advice will be much appreciated. – Rodney

A. Hi Rodney, to start with I can say things are looking good for you financially!

Congratulations on building up a portfolio of assets that look likely to give you a financially secure retirement. The one thing you don’t mention is how much you would want to spend each year in retirement.

That really is critical information. But, no drama, I’ll reverse engineer your situation and we can look at what lifestyle your assets can support.

First up you have two properties yielding, I presume after costs, $750 a week. Then you have super of $630,000.

Add two years of contributions totalling $60,000 and let’s assume the fund earns a pretty conservative 5% and you would have about $750,000  at retirement.

Invested in a balanced fund, history says that taking out 4% to 5% a year means your fund will last for many, many decades.

So let’s assume you take $30,000 a year out of super. Then you have $100,000 in saving and shares. Let’s also draw down from that at around 4%, so $4000 a year.

So it looks to me as though you could spend $73,000 or so a year, linked to inflation for decades.

And this is the big question. Is $73,000 enough? If so, you could choose to keep your properties.

But with a yield of 2.6%, I wonder about keeping them both. Here you will need expert, personal advice from a fee-charging professional advisor.

But I know I would be very interested in selling one property and having both of you make a large after-tax contribution to super. I suspect you may between you be able to put in up to $600,000.

This would greatly add to the amount available to support your living costs.

This is a complex area, there may be CGT on your property and so on, so I strongly recommend you talk to your tax accountant or an advisor before doing anything.

Written by Paul Clitheroe

Paul Clitheroe

Paul Clitheroe AM is a respected financial adviser and Money’s chairman and chief commentator. He is chair of the Australian Government Financial Literacy Board, and author of several personal finance books. Ask Paul your money question.

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  1. They ask can they retire comfortably? Well if you can’t retire very comfortably on that asset base there is something wrong with your lifestyle. Good assets, owning your home and no debt is the key to retirement.
    You have far and away many times more than most people have in their early 60’s so if you want to retire from the rat race, yes do it now but get some financial advice along the way.

    • Agreed 100%. If you can’t retire comfortably on $2.3M then “there’s something very wrong”, meaning that either your quality of life took a massive uptick in retirement or you’re worrying about nothing.

  2. Hi Paul, I’m sorry, but I didn’t understand where the $73,000 figure came from in the story above: you identified $30,000 from super and $4000 from savings annually = $34,000 – where did the rest of the income come from?

    Many thanks

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