Annual Report 2025

All $ signs in this report indicate Australian Dollars. I'll do a separate report on individual investments. I do a report breaking down spending after the end of the financial year.

Overview 

Investment returns were positive and net worth again increased. My base case net worth projection was $8.2 million and we reached $8.192 million. In December we again travelled to China and this time Vietnam for the first time. I did some short business trips to Sydney and Brisbane during the year as well. My 61st birthday was in December and at the end of November I took a redundancy package from my employer and retired.

Investment Return

In Australian Dollar terms we gained 8.7% for the year while in USD terms we gained 17.1%. The big gap is because the Australian Dollar rose. The MSCI gained 22.9% and the S&P 500 17.9% in USD terms while the ASX 200 gained 11.9% in AUD terms. The HFRI hedge fund index gained 12.7% in USD terms. Our target portfolio gained 7.3% in AUD terms and the Vanguard 60/40 AUD benchmark returned 9.8%. So, we under-performed all benchmarks apart from the target portfolio and HFRI. But we didn't do that badly compared to the S&P 500 given we target a much lower volatility. The poor performance of the target portfolio was also due to the rise in the Australian Dollar.

This chart compares our portfolio to the benchmarks in Australian Dollar terms over the year:

 

It was actually a smoother ride in USD terms:

This was unusual as the Australian Dollar usually falls during stock market crises.

  

Here are annualized returns over various timeframes:

 

We beat the HFRI, the target portfolio, and the 60/40 portfolio over the last 5 and 10 years. Our performance over 20 years is still very weak, though it matches the HFRI.

 

Here are the investment returns and contributions of each asset class in 2025 in currency neutral and unlevered terms:

The contributions to return from each asset class sum to the total portfolio return. The portfolio shares are at the beginning of the year. Rest of the world stocks did worst, because of the performance of Defi Technologies, followed by futures, which includes bitcoin. Gold was the best performer followed by hedge funds and each made similar large contributions to the total return. Private equity was disappointing, in large part due to the fall in 3i near the end of the year, the shutdown of Kyte, and a disappointing earn out at IPS. A good result from Aura VF2 saved the day.

Investment Allocation

There were significant changes in asset allocation over the year:

 

We reduced exposure to futures = crypto (-12.8% of portfolio), RoW stocks = Defi Technologies (-4.3%), and real assets (-4.2%) over the year and increased exposure to all other asset classes and hedge funds, in particular (+7.7%).

Accounts

Here are our annual accounts in Australian Dollars: 

 

Percentage changes are for the total numbers. There are lots of quirks in the way I compute the accounts, which have gradually evolved over time. There is an explanation at the end of this post. 

We earned $440k after tax in salary etc. This grew massively due to the redundancy payment. Total non-investment earnings including retirement contributions were $473k, up 97% on 2024.

 

We gained (pre-tax including unrealized capital gains) $507k on non-retirement account investments. The rise in the Australian Dollar reduced those gains by $43k. We gained only $30k in retirement accounts with $32k in employer retirement contributions. Gold and hedge funds contributed strongly to non-retirement funds and retirement funds suffered from the crypto theme.

 

The value of our house is estimated to have fallen by $64k. As a result, investment gains totaled $472k and total income $945k.

 

Total spending (doesn't include mortgage payments, life insurance, margin interest etc.) of $158k was down 7% on last year.

 

$21k of the current pre-tax investment income was tax credits – we don't actually get that money directly so we need to deduct it to get to the change in net worth. We do receive some refund of franking credits in our annual tax returns, which count towards "Other income". We saved $289k from salaries etc. before making contributions of $74k to superannuation. I also record a $7k "inheritance", which is a gift we received on our trip to China. Current net worth increased by $701k.

Taxes on superannuation returns are just estimated because, though we know the tax paid by the SMSF, our employer superannuation funds only report after tax returns. I estimate the tax these funds paid to make retirement and non-retirement investment returns comparable. The total estimated tax on superannuation was $29k. Net worth of retirement accounts increased by $108k after the transfer from current savings. With the gain in the value of our house, total net worth increased by $745k.

Projections

Last year my base case scenario for 2025 was for an increase in net worth of $800k to $8.2 million, which we hit. For this year, my best case scenario is for an increase of $900k to $9 million. My bear case is for a decline to $7.5 million, which is roughly what we would expect if stock markets fell 20% assuming a beta of 0.5 and alpha of 5%. The Australian Dollar would likely fall in that scenario, boosting the Australian Dollar value of foreign investments.

Notes to the Accounts

Current account includes everything that is not related to retirement accounts and housing account income and spending. Then the other two are fairly self-explanatory. However, property taxes etc. are included in the current account. Since we notionally converted the mortgage to an investment loan, mortgage interest is counted in current investment costs. So, the only item in the housing account now is increases or decreases in the value of our house. This simplified the accounts a lot but I still keep a lot of cells in the spreadsheet that might again be used in the future.

 

Current other income is reported after tax, while investment income is reported pre-tax. Net tax on investment income then gets subtracted from current income as our annual tax refund or extra payment gets included there. Retirement investment income gets reported pre-tax too while retirement contributions are after tax. For retirement accounts, "tax credits" is the imputed tax on investment earnings which is used to compute pre-tax earnings from the actual received amounts. For non-retirement accounts, "tax credits" are actual franking credits received on Australian dividends and the tax withheld on foreign investment income. Both of these are included in the pre-tax earning but are not actually received month to month as cash.... 

 

"Saving" is the difference between "other income" net of transfers to other columns and spending in that column, while "change in net worth" also includes the investment income.

Where the Money Came From

I just updated this graph, which breaks net worth down into savings, inheritance, and investment profits. 

Savings are from salaries etc and tax returns as well as employer superannuation returns. Inheritance is self explanatory. Investment returns include franking credits and an estimate of the taxes paid by industry and public sector superannuation funds. Here I also include the increase in the value of our house. To get actual net worth, we need to subtract from the total tax paid by the SMSF, franking credits received by non-superannuation investments, and taxes paid by those large superannuation funds. These taxes currently sum to AUD 400k.'

Roughly one quarter of net worth is from savings, one quarter from inheritance, and half from investment returns. You can see the recent effect of the redundancy payment on savings on the bottom right.

It would make more sense to place profits as the bottom layer on the graph as they were negative during the dot-com crash and the GFC. But I think it is more instructive to see the steady rise in savings over time. Now of course, I expect it to go slowly down again as we dissave.

 

December 2025 Report

December was the first post-retirement month. I am changing the layout of these reports to remove investment performance over the last five years and add in the income and spending report I dropped back in 2018. This is because I have a new focus on making sure spending stays within our budget, whereas it is hard to change investment performance over a five year period on a monthly basis. I will report on longer term investment performance in the annual review as usual.

In December, the Australian Dollar rose from USD 0.6550 to USD 0.6674 meaning that USD investment returns are better than AUD investment returns. We had a good month in terms of investment return. Stock markets were slightly up with a lot of intramonth volatility (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 1.07%

S&P 500: 0.06%

HFRI Hedge Fund Index: 0.26% (forecast)

Australian Dollar Benchmarks

ASX 200: 1.36%

Target Portfolio: -0.19% (forecast - depends on HFRI result)

Australian 60/40 benchmark: 0.22%

We gained 1.28% in Australian Dollar terms or 3.28% in US Dollar terms. So we outperformed all benchmarks apart from the ASX 200, which we got fairly close to.  These returns are preliminary, as we won't get results from Aura Venture for more than a month, and Angellist report with a three month lag. I was curious about how much I end up revising my monthly performance figures when all the data is available. Here are the results for the last year:

"Original" is the rate of return reported in this blog and "Current" is my current estimate. In the last year, on average I overestimated the rate of return initially. On the other hand, I initially underestimated the return for last December but as you can see I have already trimmed this December's number a little.

The SMSF again outperformed, returning 0.62% beating Unisuper (0.37%) and PSS(AP) (0.40%). 

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. Only US stocks lost money. Futures had the highest rate of return with Australian Dollar Futures contributing the most. Hedge funds made the largest overall contribution.

Things that worked well this month:

• As mentioned above, most hedge funds did well with Tribeca Global Resources (TGF.AX) gaining AUD 42k and Regal Investment Fund (RF1.AX) 17k. Gold, 3i (III.L), and Cadence Opportunities (CDO.AX) all gained between AUD 9 and 10k.

What really didn't work:

• Only five investments lost money and no investment lost more than AUD 10k.

We moved towards our target allocation. Our actual allocation currently looks like this:

About 65% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily liquidity, so our portfolio is not as illiquid as you might think.

Moominmama receives employer superannuation contributions every two weeks. We also make monthly concessional contributions to Moominmama's superannuation to reach the annual cap on contributions. I made the last USD 10k contribution to the Unpopular Ventures Rolling Fund this month. There will still be capital calls from Aura Venture Fund II and III. I am receiving monthly TTR pension payments from both Unisuper and our SMSF. I will decide how much to recontribute to superannuation later in the financial year. 

This was a quieter month in terms of transactions:

• I sold 5k WAM Capital (WAM.AX) shares.
• I bought net 1k shares of WCM Global Quality (WCMQ.AX). 
• I sold 250 Perth Mint Gold ETF (PMGOLD.AX) shares. 
• I sold all our position in WAM Strategic Value (WAR.AX, 100k shares) in order to fund the 1:1 entitlement offer for the L1 Global Long Short Fund (GLS.AX, formerly Platinum Capital, 85k new shares). 

Here are the income and spending accounts for this month:

Results are shown separately for retirement and non-retirement accounts as well as housing, which nowadays doesn't have much activity. The grey lines are additional notes. Total investment income is split into investment income before exchange rate moves and the contribution of exchange rates. Other income is non-investment income including salaries, employer superannuation contributions, and net tax returns. Investment income is shown pre-tax. Tax credits include franking credits on Australian Dividends and imputed tax on superannuation returns. These are taken away from investment income to get changes in actual net worth. Inheritances include gifts from relatives. Saving is from non-investment income, transfers, and inheritances.

This month, salary hit a record number as I received the redundancy payment of more than AUD 1/4 million. Spending was fairly average at AUD 12k. There was a larger than normal transfer out of superannuation as I made excess concessional superannuation contributions in the previous tax year, which I withdrew from Unisuper. We received a cash gift from Muminmama's father (counted as inheritance). As a result of all this, net worth increased by AUD 347k, almost all of it in non-retirement accounts. Now, I will have to decide how much to contribute to superannuation. I want to hit the goal of transferring AUD 2 million to a tax free pension account. I also want to max out the concessional contribution cap of AUD 30k for this year to help reduce my taxes, which will be very high because of the redundancy payment. The payment itself has low taxes but it pushes most of the rest of my income into the top tax bracket.

To keep things simple, I will use net worth at the end of this month as the "retirement number". Net worth at the end of December not including our house is AUD 6.875 million. Using the 4% rule means we could dissave AUD 275k per annum. Our spending is a lot below that. Total net worth is AUD 8.112 million.

November 2025 Report

In November, the Australian Dollar rose very slightly from USD 0.6542 to USD 0.6550 meaning that USD investment returns are slightly better than AUD investment returns. Stock markets were flat or fell with a lot of intramonth volatility (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 0.02%

S&P 500: 0.25%

HFRI Hedge Fund Index: 0.01% (forecast)

Australian Dollar Benchmarks

ASX 200: -2.51%

Target Portfolio: -0.34% (forecast - depends on HFRI result)

Australian 60/40 benchmark: -0.42%

We lost 1.93% in Australian Dollar terms or 1.88% in US Dollar terms. So the only benchmark we beat was the ASX 200. Our performance was hit by the crash in the price of 3i (see below). After underperforming last month, the SMSF returned 0.16% beating Unisuper (-1.06%) and PSS(AP) (-0.61%).

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. Returns were very mixed. Gold had the largest gain, while rest of the world stocks had the lowest. Gold made the greatest positive contribution and private equity the most negative contribution.

Things that worked well this month:

• Two investments gained more than AUD 10k: Gold (AUD 38k), Berkshire Hathaway (11k).

What really didn't work:

• Four investments lost more than AUD 10k: 3i (-), bitcoin (-28k), Defi Technologies (-20k), and Dash/IPS (-17k). 3i crashed after saying sales growth recently was soft in Action's French market. A more than 25% fall in the share price seems to be an irrational response. The actual earnings report was great. I bought more, but as usual was too early. I got out of all crypto investments (see below). IPS didn't do as well as hoped and so the "earn out" component of the takeover was less than expected.

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give the same statistics for four benchmarks. The middle block gives our performance relative to the indices. 

Our alpha relative to the ASX200 is 2.9% with a beta of only 0.51. We have much lower volatility, resulting in a information ratio of 1.30 vs. 0.99. We capture much less of the downside moves than the upside moves in the market. We also have very good performance relative to the Vanguard 60/40 portfolio with similar volatility but 3.5% p.a. more return. We captured 104% of the upside of this portfolio but only 69% of the downside. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of far higher volatility. Our USD volatility is at least less than that of the MSCI index, but our return is almost five percentage points lower!

We moved a bit away our target allocation due to investments and investment performance. Our actual allocation currently looks like this:

About 65% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We make monthly concessional contributions to Moominmama's superannuation to reach the annual cap on contributions. There is one remaining USD 10k contribution to make to the Unpopular Ventures Rolling Fund and there will be capital calls from Aura Venture Fund II and III. I am now receiving TTR (soon to be retirement) pension payments from both Unisuper and our SMSF and contributing more than the total of these back to my superannuation accounts for the remainder of this financial year. 

I was quite busy making the following additional moves this month:

• I bought 700 shares of 3i (III.L) after the price crashed. I still believe in the company.
• I sold our entire bitcoin position across three accounts. This was just over one bitcoin's worth.
• I also sold our ether position. 
• I sold our Defi Technologies (DEFT) position (15k shares).
• I bought 36k WAM Capital (WAM.AX) shares.
• I bought 5k Regal Partners (RPL.AX) shares.
• I sold 1k WCM Global Quality (WCMQ.AX) shares.
• I sold 500 Pershing Square Holdings (PSH.L) shares.
• I bought 30k Cadence Opportunities (CDO.AX) shares.
• I bought 1k Putnam BDC (PBDC) shares.
• I sold 750 PMGOLD.AX gold ETF shares.
• I made a non-concessional contribution of AUD 40k to Unisuper.
• I bought 2k Hearts and Minds (HM1.AX) shares. 

On the whole it is a shift from speculative investments to income investments, though the extra 3i shares are speculative. The last day of the month was my retirement date. This month's net worth (not including our house) together with the redundancy payment I should get this week constitutes our "retirement number". It should be approximately AUD 6.8 million. Using the 4% rule means we could spend AUD 272k per annum. Our spending is a lot below that. Total net worth at the end of November is at AUD 7.78 million.

October 2025 Report

In October, the Australian Dollar fell from USD 0.6613 to USD 0.6542 meaning that USD investment returns are worse than AUD investment returns. Stock markets continued to rise (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 2.26%

S&P 500: 2.34%

HFRI Hedge Fund Index: 0.55% (forecast)

Australian Dollar Benchmarks

ASX 200: 0.39%

Target Portfolio: 1.36% (forecast - depends on HFRI result)

Australian 60/40 benchmark: 1.55%

We gained 1.78% in Australian Dollar terms or 0.69% in US Dollar terms. So we beat three of the benchmarks.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. Hedge funds had the highest rate of return and the greatest contribution to total return.

Things that worked well this month:

• Seven investments gained more than AUD 10k: Gold (32k), 3i (24k), Tribeca Global Resources (24k), Pershing Square Holdings (23k), Platinum Capital (12k), PSS(AP) (11k), and Domacom (10k). Domacom has not been relisted on the ASX but has issued shares in private placements at 14 cents per share.

What really didn't work:

• No investment lost more than AUD 10k.

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give the same statistics for four benchmarks. The middle block gives our performance relative to the indices. 

Our alpha relative to the ASX200 is 3.0% with a beta of only 0.48. We have much lower volatility, resulting in a information ratio of 1.47 vs. 1.17. We capture much less of the downside moves than the upside moves in the market. We also have very good performance relative to the Vanguard 60/40 portfolio with the same volatility but 3.5% p.a. more return. We captured 102% of the upside of this portfolio but only 62% of the downside. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of far higher volatility. Our USD volatility is at least less than that of the MSCI index, but our return is more than five percentage points lower!

We moved a bit away our target allocation due to investments and investment performance. Our actual allocation currently looks like this:

About 65% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We make monthly concessional contributions to Moominmama's superannuation to reach the annual cap on contributions. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I am now receiving TTR pension payments from both Unisuper and our SMSF and contributing more than the total of these back to my superannuation accounts. During the month I worked on finalizing my redundancy and renewing my wholesale investor certification.

I was quite busy making the following additional moves this month:

•  I made a AUD 75k investment in Aura Group.
• I bought 900 IBTC.AX bitcoin ETF shares.
• I bought 100 QETH.AX ether ETF shares. 
• I sold 6,000 WAM Capital (WAM.AX) shares.
• I bought 9,312 MCP Income Opportunities private credit shares (MOT.AX).
• I bought 5,000 Regal Investment Fund (RF1.AX) shares.
• I sold 19,174 Pengana Private Equity (PE1.AX) shares. 
• I sold 5,000 Regal Partners (RPL.AX) shares.
• I bought 5,445 Cadence Opportunities (CDO.AX) shares.
• I bought 20,000 WAM Alternative Assets (WMA.AX) shares.
• I sold 250 gold ETF (PMGOLD.AX) shares.
• I sold 2,000 Tribeca Global Resources (TGF.AX) shares. 
• I sold 1,000 WCM Quality (WCMQ.AX) shares. 

Required Withdrawal Rate

Following up from the discussion on the safe withdrawal rate here is the history of our required withdrawal rate. This is the past twelve months spending divided by net worth minus housing equity, assuming that we have no other sources of income:

 

Retirement first looked possible in 2018 when we received the inheritance. Without that, we would likely be only just on the cusp of the 4% SWR currently. But then expenditure rose around the birth of our second child and the stock market fell in the pandemic and we went back above the 4% level. There was a voluntary redundancy scheme at my workplace in 2020, but I decided I couldn't afford to do it. 

Since then, we dropped back to a fairly consistent 3% till recently. I was waiting for another voluntary redundancy scheme though I thought about going part-time from age 60. Early this year there was a new scheme and  I submitted my application. Then I panicked and didn't take it up. Meanwhile, markets rebounded and we are now near 2%. My employer reopened the scheme and this time I am doing it. 

My forward projections assume that real expenditure will continue to grow linearly, though actually it looks like it has flattened out:

 

I do assume step downs in spending when each of my children reach age 21. In my worst case scenario, if we only made zero real investment returns after 2026, then our net worth would about halve in real terms by 2050. Our required withdrawal at that point would be 5.5%. That assumes that we don't downsize our house or cut spending.

In the best case scenario–historic rates of return of 8.4% nominal per year–we would have 4 times our current net worth in real terms in 2050.

Something people in the FI community don't talk about is that if you annuitise your wealth you can then withdraw much more than 4%. Maybe 6-7%. This is because you pool longevity risk with other people. 

 

New Thoughts on Keeping Superannuation in Accumulation Mode

A year ago, I wrote a post about whether you should initially keep your superannuation in accumulation mode when you retire. I thought that if you don't need to spend the money in your superannuation accounts right away, it doesn't make sense to pay out that money to sit in regular taxed investments. But I missed one key point. Dividends from what Americans call "taxable accounts" are taxable whether you spend them or not, but capital gains are only taxed if you sell. The more capital gains you realise, the higher tax bracket you are going to be in. Unless you are lucky enough to be able to live on dividends from the "taxable accounts" alone, you are going to have to realise capital gains if you don't have a superannuation pension. 

In my case, I might be able to stay in the 16% tax bracket if I don't need to realize capital gains. So, with tax free superannuation, I will pay very little tax. If I kept my superannuation in accumulation mode, I would be paying an average of 12.5% tax on earnings in superannuation and I would have to realise $80k of capital gains in "taxable accounts" instead of receiving a superannuation pension. That would push a lot of my earnings into the 30% tax bracket.* So, I am planning to put my superannuation accounts into tax-free pension mode and pay out the minimum distribution of 4% a year until I am 65.

With my wife still earning around $45k a year in salary for now, I might not need to do much in the way of realising capital gains outside superannuation.

What about just spending the redundancy payment for the first couple of years? Some of that is going to go into superannuation and the rest will sit in our offset account. The more we spend it, the more mortgage interest we are going to have to pay. Despite that, it might actually make sense to spend that first, but psychologically I prefer a big cash buffer, low mortgage interest, and a steady pension coming in. I can just set and forget the pension from Unisuper.

* Of course, long-term capital gains are only taxed at half the headline tax rate, so the effective marginal rate would be 16% including the Medicare levy.  

Employer Approved My Redundancy Again

I heard yesterday that my employer approved my redundancy under this round of the voluntary redundancy scheme. So, if everything goes smoothly, I will retire 30 November, just before my 61st birthday. I would have gone on leave from 1 December anyway, in order to reduce my surplus leave entitlements.

I am already changing my accounting spreadsheets to reflect this. I have also set all my investments to pay out dividends rather than re-invest them in order to maximize cashflow.

FIRE?

The university has reopened the voluntary redundancy scheme after saying that there will be no further forced redundancies. It looks like they have increased the payout to 3 weeks pay per year or service instead of two. My simulation shows that it would be a breakeven until the end of 2028 under the assumption I work full time in 2026 and half time in 2027 and 2028. In addition, I now know that I will get a UK state pension. Using the 4% rule, that means I need to save AUD 1/2 million less than I would otherwise need to. 

We don't need to reapply if we applied previously. My previous application was approved. But I said no. So, maybe I can say yes now. Technically, I would be retiring early as I am younger than 67, even though I can get a tax free pension from my superannuation.

Voluntary Redundancy

So my employer announced a couple of days ago in the weekly newsletter that there will be a voluntary redundancy scheme. The details won't be announced until next week. Up till now they said that redundancies would be based entirely on determining work needs and budgets going forward and there would be no voluntary redundancies. Moominmama might also be made redundant mid-year, as her employer is also cutting and she is under-employed in her organization currently.

So, I did a simulation of what would happen if we both quit mid-year,* I got an AUD 75k payout (1 week's pay per year of service + 25k for long service leave etc.) and retired putting my transfer balance cap into pension mode. At the end of 2025 there is no real difference, as my pay is largely replaced by the payout. At the end of 2029 our net worth is 7% lower than it would otherwise be if I followed my original plan to work half time from next year until then.**

At first, when I told Moominmama this result she said: "Why are we working anyway then?" When I mentioned that I needed to stress test the result for different rates of return etc. she began to say it was too scary that we wouldn't have a salary coming in and I shouldn't take voluntary redundancy. But with that attitude I wouldn't retire till our youngest child completes grade school in 2037 when I will be 73!

In any case, I might yet be made compulsorily redundant. Our school (group of departments) has been given a salary budget for this year that is around 10% lower than the salaries we are paying... 

* To get a rough estimate you don't need a simulation. Just work out the after tax salary and superannuation you are giving up by retiring now net of the redundancy payment and divide it by current net worth. That tells you how much more % you would have in net worth at the end of the period of foregone salary.

** Net worth in 2029 would still be AUD 1 million higher in real terms than at the end of 2025 despite being retired. This is because our current spending is only 2.9% of our net worth (not including housing equity), which is well below the classic 4% rule.

P.S. 21 February 2025

Heard today that the window for applying for voluntary redundancy will only be three weeks from 25 February when the details will be released.

Transition to Retirement

I am thinking of setting up a transition to retirement pension (TTR pension). This allows you to receive regular payouts from your superannuation once you reach the age of 60 even though you are still working. I will be 60 years old in about 6 weeks time! There are lots of strategies this can be used. In my case, I am thinking to continue working full time at least for the next year and to recontribute all the payout to superannuation as non-concessional contributions (post-tax contributions). This has two advantages: 

1. It will convert money that was contributed as concessional contributions (at the 15% or 30% contributions tax rate) and earned as investment returns into non-concessional contributions. If my children inherit some of my superannuation when they are past the age of 18 they then won't need to pay tax on this part of the payout. The "death tax" is only on concessional contributions and fund earnings.
2. Once I hit the transfer balance cap, of currently $1.9 million, I can contribute the money to my wife's superannuation instead. I am currently at $1.7 million and she is at $800k. So, there is still a lot of unused capacity there. 

When you retire or reach age 65 you can transfer money up to the transfer balance cap into a zero taxed pension account. Money over the limit stays in an accumulation account where earnings are taxed at 15% (10% for long term CGT). The TTR pension does not affect the calculation of the transfer balance cap unless you are still holding it at age 65 when it becomes a regular tax free pension account.

My Unisuper account is close to 100% concessional contributions and earnings. So, I would start with that and transfer $600k to a pension account and pay out 10% of it each year, which is the maximum withdrawal rate. You have to leave some money in the accumulation account to receive new contributions... But actually 60% of my SuperGuardian account is also concessional contributions and earnings, and so it would make sense to transfer $400k from that into a TTR pension account too. So I would be withdrawing $100k per year and recontributing. The reason I wouldn't withdraw the maximum annual non-concessional contribution level of $110k is because my employer contributes more than the allowed cap on concessional contributions each year and the excess becomes non-concessional contributions.*

The downside to recontributing to my wife's superannuation is that I could make those contributions from non-superannuation money resulting in getting even more money into super. After all, even if you have more than $1.9 million in super, the amount above the limit is concessionally taxed compared to non-super investments.** But right now I am not making those contributions. Instead, I have been building up a pile of cash offsetting our mortgage. This is partly to reduce our interest bill but also part of a plan to buy a more expensive house in the future. So, as long as I was planning on saving to buy a house, I wouldn't make non-concessional contributions to her account.

Anyway, I sent an email to Unisuper yesterday expressing my interest in TTR pensions and asking what the next step is. 

Originally, I planned on switching to half time work when I reached 60 years old, but I seem to have fallen victim to the one more year syndrome. Seems silly to sacrifice $120k in pre-tax salary and superannuation just to have a bit easier time in the teaching half of my year. Also, my university is enacting a major cost-cutting exercise that likely will see more than 500 jobs cut in total. Academic jobs will not be cut till next year. They are not putting in a voluntary redundancy scheme. But I figure that if I am made redundant then I will get a bigger payout if I am still working full time. I could be wrong about that.

* That's why my Unisuper account isn't 100% concessional contributions and earnings.

** The government plans to tax superannuation in excess of a $3 million threshold at higher rates that include unrealised capital gains. But I think the senate will not pass that legislation and we are still a long way from the $3 million level.

Moominmama's Manager Made the Whole Thing Up!

So, Moominmama talked to HR about the "voluntary redundancy". They said that there was no restructuring in progress and she would only be considered for voluntary redundancy if she literally volunteered and that basically her manager just made the whole thing up! This sounds like real incompetence or professional malpractice on his part.

Redundancy Package

Moominmama was offered a redundancy package. Seems a bit like an offer you can't refuse. When she asked if she would be fired anyway if she rejected it, her boss told her he couldn't tell her that... We don't know the details of the package yet. Her lower level manager said that as she is only working two days a week it's hard to involve her in projects or for them to take on projects that need her skills because she doesn't work enough. But she wants to take the package and doesn't want to work more days. 

She plans to reduce the daycare days of our almost 4 year old for the second half of this year. After that he should be in full time pre-school. 

I ran a simulation and through the end of 2024 the effect is a reduction in net worth of about AUD35k before considering the value of the package and after considering the likely value of the package it is about even. After that the effect gets progressively larger, but, surprisingly, in the long run (2029 and 2044) net worth is around 2% lower than in the base case. This is in contrast to the scary numbers that we are currently spending AUD 177k per year and my after tax salary is AUD 130k.

I feel like I must have done something wrong in the simulation.

Budget Cuts and Superannuation

Here in Australia we are now in the run-up to the annual federal government budget announcement. All kinds of ideas that might be in the budget are always floated in the run-up. One big one in the last few days is the idea of cutting superannuation tax concessions. Superannuation is the Australian retirement account system. It is very complex due to the nature of the tax regime. At the moment contributions are taxed at 15% rather than at people's marginal tax rate. Earnings of the funds are taxed at concessional rates and there is no tax when the money is withdrawn and once you are in the withdrawal phase there is no tax on earnings either. The latter two concessions were introduced by the previous Liberal government. So the most likely outcome is to remove the concessions for contributions. This will be a further step towards making our system like the US Roth IRA. But we will still be tax fund earnings which is the main contributor to complexity in the Australian system.

Even though obviously it is personally a bad thing for contributions to be taxed more, I think it is a sensible move. Why should high income earners get such a big concession and low income earners none? * It is the easiest way to push the budget towards surplus without raising tax rates or cutting welfare payments. All government departments in Canberra are already getting massive cuts to their operating budgets, but really there just aren't that many public servants in Canberra that this can make a really big difference, especially as in the short-term they are getting redundancy payments. I would be in favor of cutting some of the family welfare payments that the former Liberal government introduced and that Joe Hockey seems to regret, but I can't see Labor doing that.

* Of course you can flip this argument and say we should have a flat tax and super contributions are a good first step towards a flat tax. But that ain't happening any time soon...

Non-Retirement Savings

Following on from yesterday's post on retirement savings, here is the chart of our non-retirement savings:



Again, it's not adjusted for inflation and does not include any investment returns or losses and is in Australian Dollars. These savings differ in several ways from our retirement savings:

1. It's much more volatile. Not only does the positive scale cover twice the distance there are also negative numbers - dissaving. The same overall ups and downs are apparent though.

2. In yesterday's post I found our current retirement savings were not a lot higher than in various periods in the past. Here we see that 2003-2007 and 2009-2011 have a higher rate of saving than the 1990s.

The biggest period of dissaving was when I didn't have a job in 2001-2. I was travelling a lot and then I moved to the US. Together with the stock market crash this really depleted my net worth at the time. I was down to AUD 36k outside retirement accounts at the worst point. The all time peak monthly saving that immediately preceded this period was the redundancy payout I got when my job ended.

The more recent two big negative spikes are in 2007 out move to Australia and in 2010 booking our trip to Europe. We got some comments then about how we shouldn't spend beyond our means. As you can see from the chart, though our saving did dip during this period, the 12 month moving average never dipped below $1400 per month. So I think these expenditures were definitely something we could afford.

In 2008 we did hit negative saving briefly. But we are just able to live on one income.