James Wrigley, senior financial advisor at First Financial, answers readers’ questions about money every Wednesday.
Hello James,
We are a couple, both 51 years old.
Our children are 19, 17 and 15 years old.
We have both worked very hard with average incomes between $80,000 and $50,000 to be in a good position.
We own our home in regional Victoria, have approximately $150,000 in savings and about 90,000 of that is set aside to help our children get ahead.
We are both putting about $200 into super each fortnight (current balance is between $570,000 and $270,000). We aim to increase that amount once school fees end.
We’ve saved a lot along the way without taking any risks, and we’re still not very risk-taking. Would you recommend a better path to move from a “good” to a “great” position and consider retiring in your early 60s that wouldn’t cause concern?
Additionally, our super is currently in high growth/higher risk. Would you recommend leaving it there until age 50?
Thank you,
Brendan and Cristina
Hello Brendan and Christine,
Congratulations on what you have already achieved; a house paid off at age 51, great balances, and raising three kids on an average income is fantastic. You should be really proud of what you have achieved.
A “good” to “excellent” financial position is open to interpretation. I encourage you to focus on what it means to be great for you, not for someone else.
If we look at what you make after taxes right now, the person making $80,000 per year would be making $60,000 net after taxes and the salary sacrifice you are already making.
The other person earning $50,000 a year would get around $40,000 after taxes and salary sacrifice.
So now you have $100,000 of spending money that you’re using to run your household, including supporting your three children.
Over time, you will hopefully not need to support them financially, leaving more money to spend on yourselves.
For the purposes of this column, let’s call it “great” to be able to replace your current after-tax income in retirement, but not many people get there, so I think it would be a great outcome.
Now if you visit the Australian government office Moneysmart Retirement Planner and enter your data, your calculator suggests that if you continue doing what you’re already doing, chances are that within 10 years you’ll be in a position to retire and spend $96,000 a year (adjusted for inflation) until age 90.
In the early years of your retirement, you will fund all of this yourself out of retirement. From the age of 67, you start receiving an old-age pension and can finance your retirement income partly yourself and partly from the pension.
The main disadvantage of the Moneysmart retirement planner is that it estimates what you can afford to spend over time, but it also causes you to use up all your super when you turn 91. Some people are okay with that, and others want to leave money for their children. If it’s the latter, you’ll need a higher starting balance.
How do you improve it? Save more (what you mention you plan to do) or work a little harder. Without changing any other factors (like your savings rate), simply working until age 63, instead of 61, increases your spending to $101,500 a year. Increasing the $200 per fortnight to $400 per fortnight increases your expense figure even more.
As for your investment choice, while I can’t recommend particular investment options in this column, it’s generally considered a good idea to start moving from high to balanced growth in the last two to five years of your working life. You can do this in stages ranging from 100 percent high growth to 80/20 high growth/balanced, 60/40, 50/50, etc., over time.
A word of warning to you and anyone else reading this: you need to maintain some exposure to ‘growth’ throughout your retirement, otherwise you probably won’t get enough return on your super balance to last you 30 years.
I hope this helps.
Jaime
Send your questions to James at 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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