If we retired today, how much would our retirement income be? To answer the question, I updated an analysis I did a few years ago and came up with this graph:
Passive income is what our combined tax returns would be in each year if we had not received a salary nor made any work related deductions. I also added back charitable deductions and personal concessional superannuation contributions to our SMSF as these aren't costs in the same way that margin interest is, for example. So, it is not 100% passive as it includes realised capital gains and losses. I also plot how much a 4% withdrawal from our superannuation accounts and US retirement fund would amount to under the assumption that we apply the 4% rule to these accounts. My thinking is that unrealised gains on the non-retirement funds would be sufficient to maintain purchasing power. Taxes are likely to be very low, so I just ignore them.
Last tax year our income would have been AUD 154k. Our spending not including mortgage interest and life insurance was AUD 152k. So, this is one reason why I don't feel comfortable retiring as we are spending very close to our sustainable income and spending is likely to continue to rise. On the other hand, if we apply the 4% rule to our entire portfolio at 30 June 2022, it would yield AUD 175k. But maybe the 4% rule is not conservative enough. My recent analysis of how much of our returns is needed to compensate for inflation, was much more pessimistic than this.
If we were forced to stop working we could easily slash spending by taking the children out of private school, which accounts for an expected 30% of our budget.
2 comments:
My personal experience tells that private school is just the beginning. University expenses are ahead and unavoidable. I am start investing in the kids funds to avoid that temptation (taking the money away from them). I am not sure if such option exists in Oz.
It is very costly in tax to put money in your children's names in Australia. The reason is to reduce tax avoidance via this route. The best option for uni expenses if you yourself are paying high taxes is to put money into a family trust and then when the children are over 18, pay out to them from the trust. The children then pay low tax on the earnings component of the payouts compared to if you pay them from your income. But nothing stops you paying out to yourself instead before 18. And by then I probably definitely would be retired and hopefully paying little tax myself.
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