Reader Case Study: High Income Family Craves A Retirement Roadmap

retirement roadmap

Welcome to the second case study in the series!

If you missed the last one with Daniel, you can check it out here.  It was a classic case of Equity Rich, Cashflow Poor.  As an aside, hopefully Daniel ended up selling that Sydney property!

These case studies are where we take a look at a reader’s situation and flesh out some ideas on how they can reach financial independence sooner.  As always, I’m not saying this plan is the ‘best’ way, just how I might approach the situation.

Without further delay, let’s get stuck in…

 

Our Reader’s Situation

This time we have a family of 4 from Sydney.  Shaun and Linda*, who are 39, two little toddlers…and a dog.

Historically, the couple has focused on net worth goals and paying off their mortgage.  But now they’re looking to put a clear FI plan in place as well.

Shaun shared how their focus was scattered and they were torn on what to do.  Being on a large income, he was adding to his wife’s super, as she’s not earning any wages.  He was also directing a small amount to shares each month, while repaying extra on their mortgage.

All good stuff, but they weren’t sure if it was optimal for their goals.  Ideally, Shaun wanted to be able to choose whether to work or not, by age 55.

Let’s look at the numbers…

Annual Work Income (after-tax):  $147,500
…Including typical bonuses and share awards:  $212,000

General Living Expenses:  $75,000
Yearly Mortgage Repayments:  $72,000 (includes extra principal repayments of $31,000)

Home Value:  $1,000,000
Debt remaining:  $350,000

Investments: Shares – $100,000 (mostly individual stocks)

Other:  Shaun’s Super – $75,000. Linda’s Super – $115,000

……………………………..

So we can see that this family has a huge take-home income, especially with those bonuses!

And those mortgage repayments are very high.  But this is because of the couple’s hatred of debt and wanting to be mortgage-free.

Overall, their net worth position is extremely healthy.  In fact, it’s over $1 million!

Unfortunately, because that wealth is locked up in their home and super, it creates absolutely no freedom at the moment.

Shaun expressed some worry that they have very little in super, and he’s conflicted between where to direct their surplus cash.  Also, he’s extremely attracted to dividend investing and keen to get started down that path.

 

My Thoughts

This family is understandably torn between different paths to take.  So it really comes down to their priorities.

After a little poking, they revealed that being debt free and choosing whether to work or not, is most important to them.

So with this in mind, I suggested that I wouldn’t be putting a single dollar extra into super.  Here’s why…

The couple has 21 years before they can access it at 60.  And with Shaun’s income and their current balances, they’ll likely end up with a fair bit anyway.

Today, their combined super balance is $190,000.  Plus around $14,000 is added each year from Shaun’s work (increasing with inflation).

Assuming a return of 5% per annum after inflation, in 21 years, the couple will have around $1,030,000 in super.  And that’s in today’s dollars!

So it looks to me like they don’t need to worry about being light on super.

 

Shares vs Mortgage

Normally, I’d say to pay minimal mortgage repayments while investing in shares for a likely higher return.

But given the couple’s hatred of debt, I think paying this off should be the focus.

So instead of directing money to shares, super and the mortgage, I would go into ‘murder-the-mortgage mode’ and be laser focused on that.

I’m kind of an all-or-nothing guy.  The best results are usually obtained by focusing hard on one specific goal or area.  Nowhere is this more important, than achieving early retirement.

For FI purposes, I’m not a fan of the ‘buckets’ approach.  Directing a bit of money here and a bit of money there.  You’ll end up a wealthy old person that way, which is great.  But it simply doesn’t work if you want to create freedom at a younger age.

Shaun thought focusing on the mortgage made sense.  And he even decided to sell their individual shares to bring the mortgage payoff date way forward.  He said most of the companies appeared overvalued anyway.

The bonuses he receives are quite regular, but not guaranteed of course.  So we agreed that it made sense to count 50% of the yearly bonuses going forward when making projections, which is $33k per annum.

Based on this, and going into murder-the-mortgage mode, Shaun says the home loan will be fully paid off in about 4 years.  Even sooner if the bonuses stay on their current trend.

 

Savings

Once that mortgage is gone, Shaun and Linda will have total expenses of $75k per year, and income of $181k per year.  Put another way, that’s a savings rate of 58%.

Although their spending is high, it’s still a strong financial position to be in.  Because as we know, all that really matters here is your savings rate.

For those playing the FI game at home, you’ll likely agree that $75k per year is a huge amount to spend outside a mortgage or rent.  And this is the pared-down figure after Shaun agreed to look at his spending.

The previous level was quite a bit higher, but we’ll give them the benefit of the doubt, since they’re making a good effort!

Perhaps they missed my article – The Real Cost of Living: An Inconvenient Truth.

Being debt-free at this point will be a huge mental boost for them.  But it doesn’t mean taking the foot off the gas.  No way!

It means switching from murder-the-mortgage mode, into invest-like-an-animal mode!

The couple has a whopping $106k per year to invest at this point.  If they aren’t careful, they could easily slack off and waste much of this cashflow.

 

The Investing Plan

Since Shaun wants to invest for a growing stream of dividends, I’m assuming he’s investing in either an Aussie index fund like VAS, or a couple of old LICs like Argo or AFIC.  Both options have similar dividend and growth profiles, so each suit this purpose.

As Linda isn’t working, it makes sense to do most of the investing in her name initially.  Once the portfolio gets bigger, Shaun can start buying shares so they’re both receiving a decent stream of tax-effective income, after reaching FI.

I’ll assume that investment returns are 7% per annum (5% after inflation).  That return is comprised of 4% dividend yield, plus 3% growth.  And to be extra conservative, I’ll also assume Linda gets no franking credit refunds along the way.  (In reality, from day 1 she’s likely receiving 5.7% dividend yield after-tax, rather than 4%)

As a side note, if franking refunds do get abolished, they can continue to invest in Linda’s name the whole way through, as this will still yield the highest after-tax return.

 

The Numbers

This part is relatively easy to figure out.  Just a couple of simple numbers are needed to forecast their journey to FI.

Investing $106k per year, with a return of 5% per year, gives a balance of just under $1.9m after 13 years.

But that’s not the important part.  The critical point is, at this level the portfolio will be producing annual dividend income of around $76k, plus franking credits.

In retirement, franking will cover the tax entirely, so their after-tax investment income will be a minimum of $76k.  The portfolio balance and income will be even higher, if franking refunds remain as is!

That’s all in today’s dollars, and 17 years from now.  Shaun and Linda will be 56 and comfortably FI.  Not to mention their super still compounding in the background and rapidly approaching seven-figures.

They can live off dividends at this point, and do as much or as little work as they like.  And in only a couple of years, they’ll have access to that large super balance.

These are clearly just rough numbers by the way.  They’ll obviously need to keep a bit of cash on hand, or be more flexible in spending, in case dividends fall when we (eventually) have a recession.

 

Additional Thoughts

As they’ll be investing heavily into Aussie shares in their personal portfolio, it’s probably a good idea if they look at allocating their super towards international shares.

This gives the best of both worlds, in my view.  A strong level of dividend income as soon as possible for FI.  While also investing internationally for likely higher growth and extra diversification, as part of their overall plan.

Their super is effectively a very meaty backup plan.

It’s also possible the kids have left the nest at that point and the couple could look to downsize their house to free up even more cash to add to their portfolio.

Either way, Shaun and Linda’s overall net worth will likely be over $2.5 million, though only $1.9m is accessible.

That’s a pretty damn fine position to be in!

And although this stuff isn’t my forte, if they wanted to, they could possibly retire a bit earlier by selling a few shares to boost their income.

At age 54, their portfolio would be worth $1.5m and spitting out $60k per year of dividends, plus franking.  Probably not quite enough to cover their $76k of spending.

They could sell around 1% of their portfolio ($16k) per year to to top up that cashflow.  Doing this means they’re reliant on market prices, which makes me feel uneasy just typing out this idea!

Obviously this entails more risk than the initial plan.  But because they actually end up with more than they need, it’s something to consider.  And it’s only for a few years until they hit 60, when they can access their super.

If they work on killing their bills, Shaun and Linda can likely bring forward their FI date even closer.  Or if they’re interested in some part-time work or income-earning hobby after retirement.

 

Final Thoughts

So to simplify, here’s what I’d do…

Work on reducing spending further.  Murder that mortgage.  Then invest every spare dollar into dividend-paying Aussie shares like LICs or an index fund.

That’s it.  They should be comfortably FI by 56.  Or earlier, with any of the additional options or tweaks we’ve discussed.

It probably looks too simple.  But I think that’s a good thing.  Creating a simple plan that’s easy to follow is far more powerful than a complex one.  Don’t forget, perfection is our enemy.

And as I said, I think the best results come from the power of focus.  Directing all efforts towards one thing means you’ll make progress faster, which boosts motivation to do more, and the results start compounding!

Anyway, this is how I would approach Shaun and Linda’s situation.

What would you do differently?  Let me know in the comments.

Or if you have some helpful tips for this family on their journey to financial independence, please share…

 

*Names changed to protect the innocent.  Keep in mind I’m just a blogger, not a financial advisor.  Investment examples are for informational purposes only.  Please do your own research 🙂

46 comments

  1. Am I sensing a small softening towards VAS compared to LIC’s? Or maybe I am just imagining this? I guess VAs is auto-self cleansing where as LIC’s seem more fixed in their investments.

    Anyway, I like your treatment here. Downsizing a bit after the kids leave and using the excess from the sale of the big family home to something less rambling to buy up some more LIC’s (or VAS!) would be a worthy thought too perhaps. That’s what we are planning when the kids eventually go.

    1. Ahh the ever-observant Phil 😉

      Yes you’re right, my stance on the index vs our LICs has softened. For a few reasons. I don’t want to give people the impression that these LICs are far superior, or that the index is a poor choice. So I’ve decided to mention both regularly, so people will know I think both are a solid choice for our purpose here. Also, the index has continued to diversify and now financials are only around 30% of the ASX300, while there’s a solid number of growing small/mid-caps, many with overseas operations.

      I also did some digging into the distribution history of the oldest index fund ETF – SPY (S&P 500), and when measured year by year for the last 25 years, the income stream was more reliable than what I’d found before. No guarantees of that happening here, but it was interesting. Then I came across another factor that gets almost no mention – positive skew.. This makes the thought of owning every company more appealing.

      At the end of the day I still prefer LICs for their dividend growth focus, steady nature and more reliable income stream. But I respect the simplicity in having just one holding which owns everything, therefore catches all the best future companies while possibly providing a similar (though more variable) level of dividends. Hope that makes sense.

      1. Really interesting article Dave – thanks for the link.
        I have always held VGS and IVV for my international holdings (inside Super), but maybe I need to do some further thinking about VSA and VSO for outside Super. I have always bought VAS and VSO when LIC’s are too expensive, but never as a preference or as an equally conviction-based purchase.

        Time to venture down the rabbit hole again on this subject and do some more research. The fees of actively managed investments may well not e the biggest real expense, but rather the ‘missing’ of growing and high performing stocks which the index will automatically hold.

        I do not think any of this compromises the Thornhill approach too much and I am happy to make adjustments to this theory based on what I find out. VAS and VSO still pay solid dividends, self cleanse and are both conservative and transparent and no more skewed to resources and REITS than say AFIC. Thornhill would not agree but I think the basics are still Thornhill-like with out being blindly boglehead.

        1. Yeah the main concern I suppose is the index is simply a cap-weighted index – there’s no income focus. So whatever happens in the future, it could end up containing a larger number of low or non dividend payers, especially if we go thru some sort of mania/bubble. Unlikely but still. And the variable income isn’t great for retirement, so more cash on hand would be needed. Pros and cons for each of course, could easily be argued either way 🙂

          If one has a very large amount invested then the variable income would matter less, as a nasty cut to dividends wouldn’t matter too much. And as mentioned previously, you could easily have international shares too and still get a heavy flow of dividends if you have enough capital. I guess for those of us with less behind us, the dependable cashflow (that comes from LICs) becomes far more important than which gets the highest total return! That’s how I feel about it anyway.

          1. Dave, great maturity for someone so young.

            Dependable cashflow is so important for retirees of whatever age. Yes I also like cap weighted index ETFs and as you say “positive skew” might ensure you don’t miss out on the winners. But with that also comes the risk of bubbles that Index funds can’t choose to avoid. If the outperformance of the Index is due to a pile of low / no dividend paying speculative mining stocks running hot relative to a conservative dividend focused LICs is that what you really want?

            During the GFC from a dividend perspective there was not much of an impact on us thanks to LICs being able to draw on retained profits to smooth income. A wonderful thing when the world seems to be crashing around you.

            A great way to combine ETFs and LICs is to buy LICs when at a nice discount otherwise but the ETF. But if favouring an ETF maintaining a larger cash buffer might be worth considering as you will need to smooth your own cashflow given ETFs being a Trust structure can’t do this like LICs.

            End of ramble.

          2. Thanks Nodrog! Your ramblings are always interesting 🙂

            Absolutely, I’ve had the same thoughts. It’s all fine looking at the index outperforming on a total return basis when certain sectors or stocks are in favour in a bull market, but then I think “where do I want to be invested during the scary times” – and the answer is mostly in income focused LICs. We simply have a different priority other than ‘maximum performance’ which seems counter-intuitive, but I think makes sense.

            When you consider the extra cash you’d have to hold in retirement vs LICs, it’s a drag that isn’t reflected in performance comparisons (neither is fees mind you), so any underperformance of LICs is likely not as bad as it appears. There’s also the extra franking (tax paid) and being able to buy at a discount – this can add up to around 1% p.a. difference in performance from the most common comparison metrics. Confirmation bias anyone? 😉

  2. Great article! I’m in a similar situation, we’ve cut spending and currently have the murder the mortgage approach underway, glad to see a simple easy to read plan laid out that I can show my better half 🙂

  3. Sounds like a pretty reasonable plan and it prioritises what is important to them, ie paying off the mortgage then looking at investments. A couple of things I’d be thinking about. Is there any CGT if they sell the shares in which case I’d be a bit wary of doing that if it’s a large amount? With the super calculations are you assuming that extra contributions are going in the whole way through to age 60, or are you stopping once they hit their FIRE number? In any case the strategy itself is solid and more or less the same thing I’d be thinking.

    1. Cheers Aussie HF 🙂

      On the super – if they stop at 56, their super will be $800k. With no further contributions it’ll be $970k by accessible age of 60 – slightly less than if they kept working, still enough as a massive backup plan.

      On CGT – they may be up for some CGT, but given I didn’t include franking refunds, they could use the excess franking from their portfolio to reduce CGT, probably to zero. They’d be selling just $15k per year and their $60k of dividends (at that point) will come with $25k of franking credits, some of which would be refunded or could be used to offset any other taxes like CGT. Either that or the portfolio’s income would actually be higher due to franking refunds, meaning no selling would be needed. I’m not typically a fan of selling but thought I’d throw it out there anyway since it’s a possibility.

  4. Great write up Dave.
    I like the “pick one thing and murder it” philosophy. Clean and simple.

    Not knowing who usually looks after the finances in Shaun and Linda’s relationship, having a goal, tracking it and talking about it together will be advantageous. I have seen this in my relationship. For the last 9 odd years of financial togetherness I have always paid the bills, managed the mortgage and savings, now we share nearly 50/50.

    Being a part of the FI community will also likely pay dividends ;). I find myself often thinking – “would SMA do this? Would Aussie Firebug buy that?” Has been sage advice and a running joke between my wife and I.

    Keep up the good stuff! Look forward to the next LIC write up.

    1. Thanks Milky,

      Absolutely, for couples, becoming a team is powerful stuff. Life will be more harmonious and progress will be faster. No use one trying hard and the other isn’t fussed about it!

      Haha that’s an interesting approach mate. When in doubt, the answer is probably “no he wouldn’t buy it” 😉

      The next LIC review is coming soon!

  5. What about drawing equity from home and set up a separate loan to invest in LICs or ETF that pays regular good dividend under wife’s name (if they can qualify for the stricter lending criteria these days)?
    Currently can get a P and I loan for 3.52% and with the assumed yield from LIC at 4%, they are still ahead. Yes there are risks with the interest rate going up, I dont see this happening in the next 18 months. Can always sell portfolio when the loan interest goes up.

    1. Thanks for your input Kim 🙂

      That’s a possibility given their income, though since they hate debt and can’t wait to be debt-free, I’m not sure they’d be interested in that!

      If they plan to sell when rates go up to pay off the debt, there’s a chance share prices could be down 30%+ at the time, which kind of kills the exit strategy. Anything could happen really. But using low-cost debt could work out well if it was part of their long-term plan.

  6. Great thoughts and suggestions through the article and comments.

    I too would pay off the mortgage due to my own mind set. Remembering of course that this is with post tax dollars – so assuming an interest rate of 5% with a marginal tax rate of 47% this is a healthy return. With redraw available or even better an offset this leaves the money available for change of direction or circumstances. If the ASX is slowing or falling over the next few years than you have a guaranteed return by mortgage reduction in this time and you are ready to go on stocks when the time is right.

    Structure is something to think about as getting it right now is important. Changing later adds costs. But with one income in the household than those suggestions seem solid.

    I think also that given the capital available for investment than some diversification into growth stocks such as overseas as suggested is also handy. Depending on your risk profile then say up to 10% into higher risk might be worth considering. The super suggestion is a good one, let the growth occur in super and use your outside super investments to focus on cash flow or FIRE if that’s what you are after.

    Final thought – kids are expensive. Sure there are ways to save – I think AUSSIEHiFire has a post about this. But if considering private school or even childcare this comes at a substantial cost. I think their effort at $75k pa is pretty good. If extreme frugal isn’t your thing than its important to maintain your perceived quality of life (within reason) and maybe slightly delay FIRE.

    1. Thanks for sharing your thoughts SJ!

      I think they are using an offset account, so have good flexibility with their cash.

      It would be excellent for them (and us) if the market did drop a bit over the next few years, allowing everyone to scoop up future income streams at lower prices 🙂

      I believe Linda looks after the kids as she’s not working so I don’t think childcare will be a cost on their radar. But private school I’m not sure, that’s up to them to decide. Either way, they’ll have no mortgage, a good stash of investments and can do a little part time work to supplement any bonus/extra spending as they desire.

      1. Thanks for sharing buddy – it’s a topic I can’t and won’t write about due to lack of experience (obviously!) in this area. I’ll simply nod and agree with you that people can live perfectly happy lives with kids on a much smaller amount. Plenty of US examples come to mind like MMM. It’s just another area of spending that is about as expensive as we want to make it!

        Hopefully we end up getting some good Aussie examples of low spending families who are FI to point to 🙂

    1. That’s possible Paddy. Though given Linda isn’t working she will pay no tax on her dividends anyway all the way up to $95k per year, and until then she’ll in fact get franking credits refunded. Definitely an option later on if things change though, with franking or they want to own shares equally.

  7. Very similar plan to our own. Although we don’t have income that high (Well done to them for that).

    5-6 years left to pay off our mortgage then invest into low cost index/LICs $750,000-1,0000,000.

    They may find they will need a lot less income once kids move out aswell so may not need such a large final number.

    There spending is high but considering their income/saving rate I think they are doing great compare to their income peers.

    1. Thanks Mr FMT.

      Absolutely, I imagine they’d have a few peers who spend way more than they do. Hopefully you’re right and they don’t need that much, then they can be free even sooner!

      Sounds like a good plan to me mate 🙂

  8. I made the decision to pay off my mortgage before moving into investing.
    For me, it was a security thing and a hatred of debt thing. I wanted to give my family a secure base to move out into the world from. I love that no one can boot me out of this house.
    Once the house was dealt with, I started throwing everything at shares and super. I’m a bit older than your Sydney couple, so super makes a lot of sense in my situation.

    1. Thanks for sharing Frogdancer.

      Everyone has a different feeling about debt, but I think most people would rather not have any at all 🙂

      Certainly sounds like it was the right path for you. You probably know some people get slack once the mortgage is paid off and then start consuming their income instead of investing it. So well done on having the discipline to continue using your money effectively to start building your investments!

    2. We took exactly the same approach. Killed off the mortgage before starting index fund investing. Some will argue that this may not have been the best approach given the very low interest rate environment but the peace of mind we have from knowing our home is mortgage free can’t have a value put on it.

      Still have around 9 years of solid saving and investing ahead of us before planned move out of full-time work but that length of time could potentially shorten depending on how our savings and the markets perform over that period.

      Keep the case study series going, Dave. These are always a good read.

  9. Hi Dave,
    In the above scenario of Murdering the Mortgage, just how much are ‘Shaun & Linda’ paying off the mortgage per annum? Is it a straight $350k divided by 4 years?
    Thanks,
    Jeff

    1. Hey Jeff – it’s not quite that simple.
      As written, their standard repayments are $41k (of which around $15k would be interest), and they pay at least an additional of $31k off the principal. But every year currently, it’s being paid down more rapidly due to Shaun’s bonuses and stock compensation which he later sells to pay down the mortgage.

      So you’re looking at between $50k-$100k of principal being paid down, and obviously as the balance gets lower, the interest charges are less which knocks the loan down further.

  10. Hey Dave, i would like to follow you on selfwealth what is your name on there? I just started following aussie firebug on there aswell.

    1. Hey andy, the nickname on there is Snowball. Keep in mind that’s only part of my portfolio, although the rest is pretty similar 🙂

  11. Hey Dave! Another great post. Loved it! What are your thoughts on the banking royal commission? Do you think that will have much of an impact on LICs – on short and long term dividend growth investing?

    1. Cheers Chris. The question is whether it’ll affect the banks. Whether invested in LICs or the index, both are between 17-28% banks so both affected. It will likely impact bank profits as they pay fines and take one-off hits for certain things, but in the long term it shouldn’t make a major difference.

      Australia’s population growth which is skewed to working age people, means more and more folks who need and want home loans over the next 20+ years. The real question is whether the banks are going to be disrupted by another type of business-model who can provide these loans easier and more efficiently to people than the banks can. Nobody really knows the answer to that, but the banks can afford to fight some disruption or possibly buy out newer competitors and make them part of the bank (unless they come from overseas of course with their own funding).

      It may well mean bank dividends could be flat for quite a while. The old LICs buy very little bank shares these days from what I can tell, as they obviously see better prospects for income elsewhere. So I expect banks to slowly become a smaller part of their portfolio over time as other sectors rise. And keep in mind the LICs also own a good number of other companies with moderate and high dividend growth to source their income from.

  12. Talked to my partner about this. And her response was “We need money to do stuff i dont want to have no money. We have a 4 year old boy. And she wants more lol. I earn 86k and she earns 37k. Not sure how to convince her and she doesnt read much.

    I have put money into a200, veu, vts and afi.

    Am thinking to maybe drop a200 and pickup maybe whitefield (waiting for your review) or mlt or argo.
    I put afi into dssp because I should be getting a decent payrise that will crack 90k+ in feb. Currently saving 350 a week. Should I invest 1400 a month into SW or wait til i have 5K like AFB does?

    Paying extra $50 a week into super to cover 1.3mil death cover. Dont have TPD or income insurance as i recently changed to hostplus from macquarie and hostplus wont cover tpd or income because im a blue collar worker. Know any good insurance companies?

    Does this seem like im on the right track?

    1. Hmm this is super tricky when one spouse doesn’t see it the same way. Some slow and steady persuasion will be the order of the day. Maybe try and point out all the little things that we have in this country that people don’t have elsewhere in the world and they’re still perfectly happy. Or that our parents and grandparents barely had a fraction of the luxury we have and they managed perfectly fine.

      Just find ways to save a tiny bit on every category and she shouldn’t even notice the changes. Then remember the big ticket items like housing, cars etc are a killer. Try to explain to her that the whole point of saving and investing is so you can build a passive income so you can spend more time as a family, rather than be at work all the time!

      Maybe read this to her this article, for a rude awakening 😉

      Sounds like you’re on the right track Andy. The results won’t be massively different between A200 and the others, so just pick one or two and you’re all set. Up to you on the amount to purchase. Firebug saves that much each month so he’s purchasing pretty regularly. If you find it more motivating you can do it monthly since Selfwealth brokerage is so cheap. Or you can do it every second month to make it cheaper, doesn’t matter too much.

      Haha no I’m not well experienced with insurance as we have basically none!

      1. Is your dividend income paying the bodycorp/rates water and insurance for your investment properties?

        Did you buy houses or apartments?

        We currently looking at buying a 1 bed apartment in brisbane city at kangaroo point for 479k. (We got a 520k loan and peter thornhill said dont use it all). Have read every blog you have yesterday im sold on LICS haha.

        1. Is this to live in? If it is, I’d spend as little as you can as long as you’re happy about the place. If it’s for investment, I can’t help you 😉

          Our dividend income is growing nicely, and our properties continue to bleed cash lol while we wait to slowly sell them off. We’ll be selling one at the start of next year. We bought mostly villas/townhouses. The holdings costs for property are horrendous to be honest, so the net yield is very low (lower than most people will admit or bother to calculate). Growth has been decent for some and non existent for others. We use cash from a previous property sale to fund the remaining properties.

          I’d go 100% LICs/index funds if I started again today from scratch. So simple and effective. Steadily growing income and no bills. Heaven on earth 🙂

  13. Not for us to live in lol. We signed up to a real estate mentoring company. They teach the about which property will be a winner and which wont. Bit worried about body corp expenses and the likes now when it comes to apartments in the city. The one we looking at it is 4.5k bodycorp

    They said 6 houses you get 2k a week living off the equity at a low tax rate. Guess that seemed like a awesome plan until i started reading yours and firebugs blogs haha.

    1. Please be careful with people/companies like that!!! It all sounds great but it’s not what it seems. There’s so many shonky people in the property industry selling a message like that. Don’t get me wrong there are some good guys too. But sadly it’s in the minority.

      I’d love to see the maths on that and explain how that’ll work in this type of lending environment…the answer is it won’t!

      If they’re telling you to buy a new property, you know it’s a rort. Most of those people are getting kickbacks from developers or are even developers themselves.

      A property with nearly 5k in body corp in a CBD with an oversupply of units doesn’t sound like a winner to me andy.

  14. Great post Dave – big fan of your site. I have a few more ideas\questions that further drop their retirement number:

    What if they didn’t have a debt aversion? (Note such aversion seems somewhat irrational to me).
    What about downsizing their house? (1M for a house is a fair amount of capital tied up that isn’t producing income – just imputed rent. Or how about selling and renting)
    Why not combine their super balance + private holdings and invest hard in the early years in super? (this could reduce their retirement number significantly)

    1. Thanks Bludger. Some great suggestions 🙂

      There’s a myriad of things they could do, their living expenses being the major one in my mind. I did mention in the article they could downsize their house – you’re right $1m is a ton of cash to be tied up in housing. Renting is an option too though from our conversation they seemed very passionate about having a paid-off house so I didn’t bother with that idea.

      Given their baseline scenario is to retire early without having to sell shares, I didn’t suggest going hard into super as this would mean they’d have to deplete their personal portfolio while waiting for age 60 to roll around. The selling-off part was more of an afterthought as the couple wants to keep things very simple and live off dividends only.

  15. Hi everyone, ‘Shaun’ here, thanks Dave for posting the case study and thanks everyone for the interesting thoughts and engagement! Feels motivating to see so many comments of people approaching this in the same way, especially when there’s all the temptation in the world to be investing! Discipline..

    To clarify/ answer a few things in case anyone is interested;
    > we sold all the individual shares, all of which were older than 12month ownership. But don’t forget they were in my wife’s name and she’s in the zero income tax bracket
    > wife and I are very much aligned with the murder the mortgage approach
    > we’ve considered deeply about drawing equity from the home and debt recycling, but we just don’t like the risk profile it takes on, when we get significantly peace of mind and quality mental health out of being debt free. For us there’s a very real value to this and in this case it’s pretty much financially quantifiable. We’ve discussed that we’re not in a computer simulation where the challenge is to make every possible dollar out there, no, we’re in real life with real feelings and real responsibilities such as keeping risk low and security high for our growing little family
    > living on $75k in Sydney with two kids when one of us has family in another part of the world we actually thought was a good effort until we looked more into the fire community 🙂 – no childcare costs currently and no desire for private schooling by the way
    > a large part of the reason we live where we do is proximity to family (support with kids etc). Our place is relatively modest for the neighbourhood and downsizing would come at a big lifestyle cost that we don’t want to make and don’t feel the current need to

    Thanks again for great read everyone!

    1. Awesome stuff Shaun, thanks for stopping by and sharing your after-thoughts on it!

      We all wish you the best on your own personal journey to financial independence 🙂

  16. Great read and I like that Shaun popped by to clarify a few things as well. I think the suggested approach is great and wish Shaun and his family the best of luck.

    Keep the case studies coming 🙂

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