THE WEALTH BUILDER: We’re a couple on average incomes with three kids. How do we get from a ‘good’ to a ‘great’ financial position so we can retire in our early 60s?

James Wrigley, Principal Financial Adviser with First Financial, answers readers’ money questions every Wednesday.    

Hi James,

We are a couple, both aged 51.

Our children are aged 19. 17 and 15.

We have both worked really hard on average incomes of $80,000 and $50,000 to be in a good spot.

We own our home outright in regional Victoria, have approximately $150,000 in savings with about 90,000 of that set aside to help our kids get a leg up.

We are both putting around $200 into super every fortnight (current balance is $570,000 and $270,000) We aim to increase that amount once school fees finish.

We have saved hard along the way without taking any risks, and are still not very big risk takers. Would you recommend a better path for going from a ‘good’ into a ‘great’ position and to look at retiring in early 60s that would not cause worry?

Also, our super is currently in high growth/higher risk. Would you recommend leaving it there until our mid-late 50s?

Thanks,

Brendan and Christine

 Hi Brendan and Christine,

Congratulations on what you have achieved already; a paid off house by 51, great super balances and raising three children on average incomes is fantastic. You should be really proud of what you have achieved.

A ‘good’ to ‘great’ financial position is open for interpretation. I’d encourage you to concentrate on what great means for you, not someone else.

If we look at what you are earning after tax at the moment, the person earning $80,000 per annum would be netting $60,000 after tax and the salary sacrifice you’re already doing. 

The other earning $50,000 per annum would be netting around $40,00 after tax and salary sacrifice.

So right now you have $100,000 of spending money that you are using to run your house, including support your three children. 

In time you hopefully won’t need to support them financially, leaving more money to spend on yourselves. 

For the purposes of this column let’s call ‘great’ being able to replace your current after-tax incomes in retirement, not many people get to there so I think that would be a great outcome.

Now if you visit the Australian Government’s Moneysmart retirement planner and plug in your details their calculator suggests if you keep doing what you are already doing, you are likely to be in a position in 10 years time to retire and spend $96,000 pa (inflation adjusted) through until your early 90s. 

In the earlier years of your retirement you will fund that all yourself from superannuation. From age 67 onwards you start to get some age pension and can fund your retirement income partly yourself and partly from the pension.

The one major downfall of the retirement planner on Moneysmart is that it calculates what you may be able to afford to spend over time but also has you using up all your super by the time you turn 91. Some people are OK with that, and others want to leave money for their children. If you are the latter, then you’ll need a higher starting balance.

How do you improve it? Save more (which you mention you plan on doing) or work a little longer. Without changing any other inputs (such as your saving rate) just working to age 63, instead of 61, increases your spending to $101,500 pa. Increasing the $200 per fortnight to $400 per fortnight increases your spending number even further.

As for your investment option, while I can’t recommend particular investment options for you in this column, it is generally considered a good idea to start to move from high growth back to balanced in the last two to five years of your working life. You may do that in stages moving from 100 per cent high growth, to 80/20 high growth/balanced, 60/40, 50/50 etc over time.

One word of caution for you and anyone else reading this, you need to keep some ‘growth’ exposure during your retirement otherwise you likely won’t earn enough of a return on your super balance to see it last you 30 years.

I hope this helps.

James

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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