Author Topic: Australian FI/ER Question  (Read 2346 times)

Adventures With Poopsie

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Australian FI/ER Question
« on: February 19, 2016, 11:01:44 PM »
Hi Mustachians,

I am still fairly new to the forums but after reading so much good advice, particularly amongst Australians, I'd like to ask a question.

My partner and I will both receive a defined benefit pension at 55. This will be paid the rest of our lives. However, we want to retire significantly earlier than 55, so need to figure out how much we need outside of super to do so.

I understand the 4% SWR (and understand it may be lower for Australians, but just using it as an easy to navigate round number in this scenario). My understanding is that we calculate our annual spend and then multiply it by 25 and that should last us forever.

However, we don't need it to last forever, we just need it to last until 55. So how best to calculate it?

Is it as simple as saying well, my partner is 42 and therefore has 13 years until he gets his pension. So annual spending multiplied by 13 is what we need?

Or, is there a better way to do it that takes into account SWR and the possibility of fluctuating markets and continued compounding over that 13 years?

Any advice would be greatly appreciated!

deborah

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Re: Australian FI/ER Question
« Reply #1 on: February 20, 2016, 02:50:36 AM »
SWRs are for a reasonable time period where good years and bad years more or less cancel each other out. For something a lot shorter I think you need to think about where your savings are (and how much income they are likely to earn), the financial environment you are in, and how it is likely to change. For instance, if your savings are always keeping up with inflation, then 13 is probably a reasonable multiplier. However, having lived through a period of high inflation, I would tend to add 20%, so go with about 15 as a multiplier (but that is just me). But if you were retiring tomorrow, you might just extrapolate your current investment earnings for that 13 years.

Adventures With Poopsie

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Re: Australian FI/ER Question
« Reply #2 on: February 20, 2016, 02:24:21 PM »
Hi deborah, thank you for the reply. It makes sense what you said about adding 20%. The last thing we want is to run out of money when he is 53 and have to go back to work for two years. Thanks for your thoughts!

Adventures With Poopsie

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Re: Australian FI/ER Question
« Reply #3 on: February 21, 2016, 01:17:30 AM »
I just had another thought. If we want to have more after he is 55 than his pension will pay out (likely), then we should probably stick with the 25x rule. I just don't want us to work for longer than we have to. I wish there was more certainty in this all.

deborah

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Re: Australian FI/ER Question
« Reply #4 on: February 21, 2016, 01:28:03 AM »
If you know what his pension will be, you may want to use cFireSim, including his pension amount and when you get it, to see how much it thinks you will need.

Adventures With Poopsie

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Re: Australian FI/ER Question
« Reply #5 on: February 21, 2016, 02:37:44 PM »
Wow, cFireSim is awesome. Thanks deborah. I had never used it before.

I didn't realise I needed to put the amount I intend to have when I retire. I put what I have now and the result was abysmal. More work to go!

arebelspy

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Re: Australian FI/ER Question
« Reply #6 on: February 21, 2016, 02:41:24 PM »
You can put the amount you have now, the year you intend to retire, and it'll increase the amount you have now automatically by historical market returns.  You can then also add additional savings for while you're working, plus the pension.
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Re: Australian FI/ER Question
« Reply #7 on: February 21, 2016, 03:24:13 PM »
You can also use the MoneySmart calculator https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/retirement-planner

You need to click on the "how it works" icon up the top right and put in some things there, and it doesn't include DB pensions like your husband's, but it can include the OAP (or not, if you remove it in "how it works").

What I do is, firstly, remove the OAP in how it works, say I have no super and am my employer is not contributing, and change the numbers in other investments until I get the amount per year that the DB pension will give me.

Then I include that amount in the outside super amount and I do the real calculation (add in OAP as well). That gives me a rough idea of how much I need. This is especially true, as I had extra super outside the pension.

This is especially valuable for Australians where assets in (non DB) super need to be taken out in certain percentages each year.

deborah

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Re: Australian FI/ER Question
« Reply #8 on: February 21, 2016, 03:41:35 PM »
I assume your defined benefit pension is with the NSW government rather than the Australian Government. You might look on the website for your provider and see if they have a pension calculator - particularly one that gives your amounts if you leave early. Unfortunately, cFireSim will not give you the correct amounts because if you leave early, DB pensions tend to not increase at the rate you would think that they should. You may want to talk to the pension provider and work out exactly what it is telling you.

You may also want to work out whether you can do what I did and look at all the leave provisions available to you, to actually make your retirement date a lot later than you retire (this will give you a better DB multiplier). Although I had only just earnt LSL and only had 3 months, I was able to take it at half pay, leave at half pay and leave without pay to take a full year off before I actually retired. You may also find that you can purchase leave, and take that at half pay too. When you are doing your calculations, don't forget that you are earning leave while you are on leave. And check the provisions carefully, because I found that I had an extra month of LSL at the end because LSL accumulated at the full time rate even though I was on leave at half pay! HR had worked out everything for me (I had worked it out as well) because I wanted to take as little leave without pay as possible, and neither of us realised this.

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Re: Australian FI/ER Question
« Reply #9 on: February 21, 2016, 04:02:23 PM »
following

Adventures With Poopsie

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Re: Australian FI/ER Question
« Reply #10 on: February 22, 2016, 02:25:38 AM »
Thanks ARS!

Deborah, thank you. You have given me some really good advice and definitely some stuff to think about. Our pensions are federal government, not state.

I will play around with the cFireSim a bit more and see how I go. Stand by for more questions ;)