Author Topic: FIRE in Australia  (Read 573 times)

retiremefast

  • 5 O'Clock Shadow
  • *
  • Posts: 7
FIRE in Australia
« on: October 27, 2019, 06:24:42 AM »
Good evening fellow MMMs.

As I am still earning and trying to get ahead with my knowledge, I will come to you for an advice. Will do my best to keep this thread updated so that others, if they consider it a good source, can learn from it.

Life Situation:
34 years old couple (both the same age), married no kids (DINKs)
European by birth (Romania), permanent residents in Australia (Melbourne) by current status. The decision to move to Australia aimed improving the quality of our life as main objective. At this point, I can’t say 100% this is the place to retire … we decided to take the move one step at a time (to prevent psychological overwhelming). First milestone on our list is Australian citizenship which is roughly in 5 years from now. After that, will draw a line and see what is to be done next.
With no real plans of having a baby, my wife and I, we consider starting a rigorous way of preparing for reaching FIRE (the sooner, the better). Realistically thinking, a more accurate way would be a semi-retirement plan in which an income source will be available (either from working part-time or as contractors).
We live a balanced life, not spending too much on things we done need, save on a monthly basis anything from 30% to 45% out of our monthly family income, enjoy life and spoil ourselves occasionally.
We are very happy with the renting approach. Not planning on buying a property here in Australia at this point, but we don`t exclude this option as a way to invest in our future (if the case will ask for it). I have a good understanding of our yearly budget to sustain our current comfort level and I am eager to improve it, looking to make everything flow better (and leaner).

Gross Salary/Wages:
me (IT Consultant): AU$92k / year (9.5% Australian Super included)
her (Internal Auditor): AU$109k / year (10% Sun Super included)
- no additional source of income outside salaries

Current expenses:
1. Fixed expenses: AU$48.5k / year
Rent: AU$2.2k / month (AU$26.1k / year)
Utilities: AU$0.4k / month (AU$4.8k / year)
Transport: AU$0.3k / month (AU$3.6k / year)
Supermarket basket: AU$1k / month (AU$12k / year)
Romanian household): AU$0.2k / month
2. Casual / Temporary expenses: AU$12k / year
Mortgage (Romanian apartment): AU$0.5k / month. It is planned to be fully paid by July’20
Fun & Extras (Australian lifestyle): AU$@1k / month

Assets:
1. 3-bedroom apartment in Bucharest (capital of Romania). When it will be fully paid, we think on put it on the market for rent. Possible income would be AU$0.6k / month (AU$7.2k / year)
2. Romanian Savings Account (EURO) of EUR5.5k = AU$9k with no interest at the moment. Will be converted to RON to benefit from the 4% Bonus interest in the first 4 months after which, most likely, will be used to advance repay the mortgage.
3. Romanian Savings Account (RON) of RON28k = AU$10k with 1% annual interest (compound monthly) at the moment. Will be merged with EURO savings into 1 single account to benefit from the 4% Bonus interest in the first 4 months after which, most likely, will be used to advance repay the mortgage.
4. Australian Savings Account (AUD) of AU$19k with 1.95% annual interest (compound monthly)

Liabilities:
Mortgage for the apartment back-home in Romania that will be paid in advance by the end of July 2020 (expected to pay around EUR35k, will update in December, when I will be finding out the exact amount from the bank)

Time Allocation:
20-25 years active investment (or until financial freedom is achieved)

Investment approach:
Long-term, medium risk investment with average steady growth rate.
Markets to follow: Australia and US, whichever is more tax efficient.
Goals: low-cost ETF, Dividend Reinvestment Program

Desired Asset Allocation:
Ideally, my aim is for a Vanguard Australia Growth ETF Portfolio with 80% Growth / 20% Income, that will be adapted every 5 years (Income will grow up and Growth will shrink down). Until reaching the CASH cap will be hit (AU$100k), no BONDS will be included. After that, only BONDS will cover the 10% of Income. We will start with AU$5k which will be adjusted as long as family income will go up with time
•     80% Growth
     o     40% VAS (Vanguard Australian Shares Index ETF – Fact sheets) - AU$2k
               Management Fee: 0.10%
             Performance (since inceptions): 9.88% (4.68% distribution + 5.20% growth)
             Equity yield (dividend): 4.1%[/li][/list]
     o     40% VGS (Vanguard MSCI World ex-Australia Index International Shares ETF – Fact sheets) - AU$2k
             Management Fee: 0.18%
             Performance (since inceptions): 13.04% (3.49% distribution + 9.55% growth)
             Equity yield (dividend): 2.4%
•     20% Income
     o     10% VBND (Vanguard Global Aggregate Bond Index (Hedged) ETF – Fact sheets) - AU$0.5k
             Management Fee: 0.20%
             Performance (since inceptions): 5.3% (1.81% distribution + 3.49% growth)
             Yield to maturity (dividend): 1.34%
     o     10% CASH = ING Savings Maximizer 1.95% / year (max AU$ 100k) - AU$0.5k

Growth
•     VAP = Vanguard Australian Property Securities Index Fund
•     DJRE = SPDR Dow Jones Global Real Estate Fund
•     VAS = Vanguard Australian Shares Index Fund
•     VGS = Vanguard International Shares Index Fund
•     VGAD = Vanguard International Shares Index Fund (Hedged)
•     IJR = Vanguard International Small Companies Index Fund
•     VGE = Vanguard Emerging Markets Shares Index Fund
Income
•     VAF = Vanguard Australia Fixed Interest Fund
•     VIF = Vanguard International Fixed Interest Index Fund (Hedged)
•     VCF = Vanguard International Credit Securities Index Fund (Hedged)
•     VBND = Vanguard Global Aggregate Bond Index (Hedged)

Most likely, I will move my Super funds from Australian Super to Sun Super, merging with my wife`s account (will do a study before that but Sun Super I understand is one of the best options).
Salary Sacrifice – We plan to mimic the 9.5% paid by employer in our salary sacrifice, staying under the AU$25k cap to lower the Tax bracket

Specific Question(s):
1.   AU$ 100k Cash invested in a Saving Account (with a 1.95% Interest Rate) will be used as emergency found. When this amount will be achieved, I will switch to VBOND. My wife and I, we now analyse if it wouldn`t be safer to take 6 months and raise a “CASH safety net” of AU$30k and start the investing around January 2021.
2.   I read about using the Super account to mimic the outside Super investment ratio. As I don`t want to complicate things too much, I will look for the easiest way to do so (considering also the default Super fund investment portfolio)
3.   What would be a good brokerage agency to work with? I have tried playing around with SaxeTrader which seems to be rather easy to follow. An alternative would be NABTrade (part of my wife banking tools). What would you recommend?
4.   Reinvestment of dividends (DRP) will help me lower the investment expenses by not paying extra brokerage fees, but they don’t work with the above equites chosen. That seems to add an extra $6.99 / buy transaction which seem to be bearable
5.   Retiring in Romania (as an example) after reaching the Retirement Age for minimizing expenses but keeping my investing assets in Australian Investment Market, will that be a problem? Any limitations?
6.   Total Monthly Income, after reaching retiring age (65-67), I do hope to be around AU$6k and should be, ideally obtained from dividends (hoping that I will be able to keep the my investment portfolio money intact, going with less than 1% SWR), on the premises that I can move all assets in my Super portfolio switched to a safe 20% equites / 80% bonds allocation - will that be something achievable? Anything I should do from start or is this a thing to deal when the time will come?
7.   Are there any general tax advises to follow (and be prepared) for efficiency, particular to Australian market? (trying to anticipate the progress therefore need to be on the right track from the begging)
8.   Is there a better way to prepare my investing portfolio based on everything I shared or the current direction is just about right to start with? Shifting later (based on circumstance changes) will that have any big impact?
I do like to keep everything simple but I know myself and I am pretty sure I will go full-retard with reading / learning / listening advises as I am a control-freak 😊



Study materials:
1.   Investing in Australia: https://www.bogleheads.org/wiki/Investing_in_Australia#Superannuation
2.   Best Australian ETF for Australian Shares: https://www.etfbloke.com/best-australian-etfs
3.   Safe Withdrawal Rate (SWR): https://www.investopedia.com/terms/s/safe-withdrawal-rate-swr-method.asp
4.   Very good post with insightful advices for me as well (indirect): https://www.bogleheads.org/forum/viewtopic.php?p=4786048#p4786048
5.   Capital Gain Tax: not enough study time allocated
6.   ETFBlock: https://www.etfbloke.com
7.   Different blogs / podcasts, etc that I follow daily.

retiremefast

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: FIRE in Australia
« Reply #1 on: October 27, 2019, 07:24:37 AM »
I just realised that a better place for this post would be Case Study section. Would a moderator be able to help me move it or should I Delete and open on there directly?
Apologies for not paying attention before posting it.