Author Topic: Australian Superannuation Post Fire  (Read 11744 times)

deborah

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Re: Australian Superannuation Post Fire
« Reply #50 on: January 30, 2016, 02:04:13 AM »
Ideally we could access it earlier but I reckon so many people would just spend it all and then go on the pension.
Well, ALL the studies that have been done say that almost no-one does this. If they spend it all, it is generally a small amount, so they would end up on the pension anyway. But anyone who has enough superannuation that they are not going to end on the pension, just don't. I guess the people who are currently retired would all remember relatives on the pension who really struggled (before it was indexed, and pensioners really were a fair bit below the poverty line).



steveo

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Re: Australian Superannuation Post Fire
« Reply #51 on: January 30, 2016, 02:52:17 PM »
Ideally we could access it earlier but I reckon so many people would just spend it all and then go on the pension.
Well, ALL the studies that have been done say that almost no-one does this. If they spend it all, it is generally a small amount, so they would end up on the pension anyway. But anyone who has enough superannuation that they are not going to end on the pension, just don't. I guess the people who are currently retired would all remember relatives on the pension who really struggled (before it was indexed, and pensioners really were a fair bit below the poverty line).

Interesting. If that is the case then the age limit should be lowered. I can't see tha happening though due to my comment previously.

Leisured

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Re: Australian Superannuation Post Fire
« Reply #52 on: March 10, 2016, 10:25:44 PM »
No need to invest extra money into your existing super fund, Deborah; invest the extra in an Australian imputation fund, so you receive tax free dividend income, assuming your marginal income tax rate is 30%. You have more control over the investment, but the disadvantage is that you invest with after tax income.

urbanista

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Re: Australian Superannuation Post Fire
« Reply #53 on: March 11, 2016, 03:55:59 AM »
What everybody thinks about maximizing super contributions and using one's house to get through till the super is available?

Say, you retire at 45 and run out of outside-super-money at 55. Get $250,000 redraw from the (almost paid off) mortgage and use it to get to the age of 60? Then pay any accumulated mortgage balance with super.

deborah

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Re: Australian Superannuation Post Fire
« Reply #54 on: March 11, 2016, 04:49:05 AM »
No need to invest extra money into your existing super fund, Deborah; invest the extra in an Australian imputation fund, so you receive tax free dividend income, assuming your marginal income tax rate is 30%. You have more control over the investment, but the disadvantage is that you invest with after tax income.
Why? Let's assume that you can have an ETF in Super, so you would get more advantage than externally, and you have the same level of control.

What everybody thinks about maximizing super contributions and using one's house to get through till the super is available?

Say, you retire at 45 and run out of outside-super-money at 55. Get $250,000 redraw from the (almost paid off) mortgage and use it to get to the age of 60? Then pay any accumulated mortgage balance with super.
It would be a good contingency fund if you ran out of money in your investments to gradually redraw from your offset account as you needed the money. That way you wouldn't have minimum limits on the size of the redraw, and it would not have fees. You could also have the entire mortgage paid off (but not closed) before you started to draw down on the offset. And you wouldn't need to worry about satisfying income etc. tests.



steveo

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Re: Australian Superannuation Post Fire
« Reply #55 on: March 11, 2016, 04:51:38 AM »
What everybody thinks about maximizing super contributions and using one's house to get through till the super is available?

Say, you retire at 45 and run out of outside-super-money at 55. Get $250,000 redraw from the (almost paid off) mortgage and use it to get to the age of 60? Then pay any accumulated mortgage balance with super.

I don't like the idea but in situations like you are talking about you could use it like you state. I intend to have more outside of Super than in Super.

Aussiegirl

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Re: Australian Superannuation Post Fire
« Reply #56 on: March 11, 2016, 09:38:50 AM »
What everybody thinks about maximizing super contributions and using one's house to get through till the super is available?

Say, you retire at 45 and run out of outside-super-money at 55. Get $250,000 redraw from the (almost paid off) mortgage and use it to get to the age of 60? Then pay any accumulated mortgage balance with super.

Urbanista - are you sure that you're going to be able to take a lump sum payment from your super when you're 60?  I'm assuming that you're 45 or less from the tone of the question - theres a lot of water to go under the bridge (and governments to come and go) between now and when you can access your super.    There will be a push in the future both to raise the preservation age in line with the pension and also to mandate pensions / annuity streams.   What would be the end result if one or both of those situations came about?

urbanista

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Re: Australian Superannuation Post Fire
« Reply #57 on: March 11, 2016, 01:53:35 PM »
Thing is, super is extremely attractive for me right now. Every year it's like free $9000 plus only 15% tax on dividends.

If the lump sum super is banned and I have to take an annuity, even that should be enough to keep up with the $250,000 mortgage? Our estimated super at 60 is 1.5M. In the worst case scenario I can sell the house.

happy

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Re: Australian Superannuation Post Fire
« Reply #58 on: March 11, 2016, 03:02:02 PM »
What I don't like about this plan is that you are then paying the bank interest on the re-draw.  Sure at the moment interest rates are only 4%ish, but  you don't know what they will be in advance. How would you feel about 10-15%? Have you done the math on that? It might make your tax savings now less impressive.  In 1990 rates were17% and it only took just over 2 years for them to drop to 10%. I can remember people saying things like "we'll never see interest rates in the single digits again".   And then we did.   Sure no-ones predicting even much of a rate rise anytime soon, but things can change and can change quickly. 

In short:
1. paying interest on debt again is inefficient.
2. you don't know what the interest rate might be.
Journalling at Happy Aussie Downshifter

Aussiegirl

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Re: Australian Superannuation Post Fire
« Reply #59 on: March 12, 2016, 02:32:48 PM »
Thing is, super is extremely attractive for me right now. Every year it's like free $9000 plus only 15% tax on dividends.

If the lump sum super is banned and I have to take an annuity, even that should be enough to keep up with the $250,000 mortgage? Our estimated super at 60 is 1.5M. In the worst case scenario I can sell the house.

Is the $1.5m in todays dollars, or just the amount that one of the retirement calculators spits out (which will be future dollars).   I'd be tempted to model the cashflows in todays dollars (using a min of a 3% inflation rate and an average interest rate of 7.5%) just to make sure you're completely happy with the results. 

Its not a strategy that I'd be comfortable with.  However, if you are forced to sell, after repaying the loan you think you could still buy a smaller  house with the money left over, and you'd be comfortable in that smaller house, then maybe its OK.   I'd probably just sell the house upfront and downsize though, to avoid the interest.   

The other thing to consider is whether super will still get the tax breaks in the future as it does now, which I think is very unlikely.  You're obviously in the top tax bracket, so you're squarely within the sites of those who would like to see high income earners access to tax concession in super taken away. 

As an aside, if you have a partner who earns less than you and has a lower super balance, are you super splitting?  Be worth trying to ensure that the $1.5m is no all in one account at the end of the day. 

urbanista

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Re: Australian Superannuation Post Fire
« Reply #60 on: March 12, 2016, 10:53:58 PM »
Thanks everyone for the responses.

Actually, we are not super high earners. Our marginal tax rate is 39%. So I don't think we are going to be specifically targeted for extra tax on super.

As I've said, if we do t max out our super, we are leaving free $9000 each year on the table. Assuming 4% growth rate in super, that's after inflation and taxes, after 7 years that grows to $72,000 and then 15 years to compound brings that to $132,000. That's a lot of money to leave on the table.

Our expenses are $40,000, and even with the mortgage interest rates 10%, the interest we would pay after 5 years is going to be only $22,000 in total.

If the interest rates go crazy like 17%, we can just downsize.

« Last Edit: March 12, 2016, 10:59:39 PM by urbanista »

urbanista

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Re: Australian Superannuation Post Fire
« Reply #61 on: March 12, 2016, 11:16:13 PM »
The whole reason I am thing about it all is that we want to tie a lot of our wealth into a house. Probably 1.3-1.5M. So we are going to pour a lot of money into the house and have only 4-5 years to save for early retirement after the house is paid off. So I thinking there must be ways to utilise all that wealth tied up in the house somehow in the future!

I know it's crazy but I am so tired of 2.5 hours daily commute for the both of us. It sucks us dry. We have no energy left at the end of the day. Also, DS is going to start school next year, that will turn my commute to full 3 hours daily. The area we are now is nice but not walkable so need two cars. Yet, morning traffic is a nightmare. Guess I could retire right now but DH is not emotionally ready, and I will be very lonely at home by myself. I also love what I do and get paid well.

The area we are looking at now is super walkable, not to work but to the train station, shopping, schools, and family nearby, so saving on child care too. We can ditch one car and cancel my city gym, since I will have time to exercise in the morning. Sadly it comes with a huge price tag on houses. DH refuses to rent or live in an apartment even temporarily. He is fine with working longer but at the moment he has virtually no life Monday to Friday, and half of the week end goes to unwind from work. I really hope that throwing money at the problem (at the house) will help in our situation.

steveo

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Re: Australian Superannuation Post Fire
« Reply #62 on: March 12, 2016, 11:49:57 PM »
The whole reason I am thing about it all is that we want to tie a lot of our wealth into a house. Probably 1.3-1.5M. So we are going to pour a lot of money into the house and have only 4-5 years to save for early retirement after the house is paid off. So I thinking there must be ways to utilise all that wealth tied up in the house somehow in the future!

Why not move and downsize.

I know it's crazy but I am so tired of 2.5 hours daily commute for the both of us. It sucks us dry. We have no energy left at the end of the day. Also, DS is going to start school next year, that will turn my commute to full 3 hours daily. The area we are now is nice but not walkable so need two cars. Yet, morning traffic is a nightmare. Guess I could retire right now but DH is not emotionally ready, and I will be very lonely at home by myself. I also love what I do and get paid well.

The area we are looking at now is super walkable, not to work but to the train station, shopping, schools, and family nearby, so saving on child care too. We can ditch one car and cancel my city gym, since I will have time to exercise in the morning. Sadly it comes with a huge price tag on houses. DH refuses to rent or live in an apartment even temporarily. He is fine with working longer but at the moment he has virtually no life Monday to Friday, and half of the week end goes to unwind from work. I really hope that throwing money at the problem (at the house) will help in our situation.

I read this and think you need to reassess your plan. It sounds like the move mightn't really work out that well. Why not think about other options - retiring earlier, moving to a smaller house or apartment or even renting.

Aussiegirl

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Re: Australian Superannuation Post Fire
« Reply #63 on: March 15, 2016, 03:31:37 PM »
The whole reason I am thing about it all is that we want to tie a lot of our wealth into a house. Probably 1.3-1.5M. So we are going to pour a lot of money into the house and have only 4-5 years to save for early retirement after the house is paid off. So I thinking there must be ways to utilise all that wealth tied up in the house somehow in the future!

I know it's crazy but I am so tired of 2.5 hours daily commute for the both of us. It sucks us dry. We have no energy left at the end of the day. Also, DS is going to start school next year, that will turn my commute to full 3 hours daily. The area we are now is nice but not walkable so need two cars. Yet, morning traffic is a nightmare. Guess I could retire right now but DH is not emotionally ready, and I will be very lonely at home by myself. I also love what I do and get paid well.

The area we are looking at now is super walkable, not to work but to the train station, shopping, schools, and family nearby, so saving on child care too. We can ditch one car and cancel my city gym, since I will have time to exercise in the morning. Sadly it comes with a huge price tag on houses. DH refuses to rent or live in an apartment even temporarily. He is fine with working longer but at the moment he has virtually no life Monday to Friday, and half of the week end goes to unwind from work. I really hope that throwing money at the problem (at the house) will help in our situation.

I can understand the "sucking you dry" comment.   I work long hours and at times it does feel like you have no life.  However, the way I look at it is that I want to work for the minimum number of years to give myself the ultimate freedom.   Buying a $1.3-1.5m house is a lot of extra years of working.......  DH clearly has thought about the trade off he's making, he'd rather the commute than rent or live in an apartment.  Personally, I'd rather rent or live in an apartment!  Has he done the "your money or your life" exercise of working out his hourly rate once he takes into consideration all the extra time needed to get ready for work, commute, unwind etc?  Its worth doing - puts into perspective not only the additional time value but also that you could earn a lot less and still have a richer life.

I don't include the value of our PPOR in our retirement planning.  Its in our net worth, but I don't ever want to be in a position where our PPOR would need to be used  or compromised - but I'm ultra conservative like that. 

urbanista

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Re: Australian Superannuation Post Fire
« Reply #64 on: March 15, 2016, 04:40:10 PM »
What everybody thinks about maximizing super contributions and using one's house to get through till the super is available?

Say, you retire at 45 and run out of outside-super-money at 55. Get $250,000 redraw from the (almost paid off) mortgage and use it to get to the age of 60? Then pay any accumulated mortgage balance with super.
It would be a good contingency fund if you ran out of money in your investments to gradually redraw from your offset account as you needed the money. That way you wouldn't have minimum limits on the size of the redraw, and it would not have fees. You could also have the entire mortgage paid off (but not closed) before you started to draw down on the offset. And you wouldn't need to worry about satisfying income etc. tests.

Thanks, Debora. Would that mean that the mortgage would have to be still current? If we refinance just before retiring at the age of 45 and get a 25 years mortgage, but put all the money into the offset account, there will be no repayments until we start drawing the offset account. Which is sometimes between 55-60 till the super becomes available. Because the house value is well above 1M, I will be comfortable to draw at least 25% of the value, but not more than 40%. Then either super becomes available or just sell and buy a smaller home.

I know that there could be a depression with the slow housing market, etc. That is the risk I am willing to take.

urbanista

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Re: Australian Superannuation Post Fire
« Reply #65 on: March 15, 2016, 04:42:09 PM »
I can understand the "sucking you dry" comment.   I work long hours and at times it does feel like you have no life.  However, the way I look at it is that I want to work for the minimum number of years to give myself the ultimate freedom.   Buying a $1.3-1.5m house is a lot of extra years of working.......  DH clearly has thought about the trade off he's making, he'd rather the commute than rent or live in an apartment.  Personally, I'd rather rent or live in an apartment!  Has he done the "your money or your life" exercise of working out his hourly rate once he takes into consideration all the extra time needed to get ready for work, commute, unwind etc?  Its worth doing - puts into perspective not only the additional time value but also that you could earn a lot less and still have a richer life.

Thanks, Aussiegirl. The thing is, we already been doing this for the last 6 years. Add a child and graduate school for me on top of full time job. I just can't do it anymore. I will not last another year. Must move now or risk a major breakdown.

Aussiegirl

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Re: Australian Superannuation Post Fire
« Reply #66 on: March 17, 2016, 01:57:20 PM »
Urbanista - if things are at that point, perhaps another conversation with your partner is in order.  Surely he would compromise on the renting / apartment stance if it would mean so much to you?

urbanista

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Re: Australian Superannuation Post Fire
« Reply #67 on: March 17, 2016, 06:14:59 PM »
Urbanista - if things are at that point, perhaps another conversation with your partner is in order.  Surely he would compromise on the renting / apartment stance if it would mean so much to you?

Not a single chance :( 

nnls

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Re: Australian Superannuation Post Fire
« Reply #68 on: April 02, 2016, 01:18:01 AM »
Posting to follow.

 I am 28 and put almost $600 extra into super from my pretax income (which is about 10% of my take home pay) I am trying to work out if this is a good strategy for now or if I should be just investing out of super.

Itchyfeet

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Re: Australian Superannuation Post Fire
« Reply #69 on: June 30, 2017, 12:02:41 AM »
Hmmmm.... dusting off an old thread in my deliberations on super strategy post fire.

However, what caught my eye here was Urbanista's contemplations.

I don't know what Urbanisata finally decided, but I can offer some perspective as 7 years ago we were in the same position, struggling with a long commute which was impacting heavily on our health and our marriage.

After much deliberation We took the plunge and forked out for a $1.4M house, taking on a $1.0M mortgage at the time. Eek.

Mind you, this was before my thoughts of FIRE..... I doubt I'd make the same decision again, but let me share how it panned out....

Ultimately we got lucky and the decision was a big winner
  - the house is now worth around $2.1M, so we won the financial gamble, but I wouldn't expect any real cap gains for the next 7 years so this is an aberration for anyone thinking of doing what we did.
  - having an extra few hours at home every day had a very positive impact on my health, our marriage and our social lives. For me this has been a far more important outcome than the financial outcome. It made a HUGE positive difference to our lives.
 
If I had my time again I would still have relocated but to a cheaper house or apartment.

Having the monster mortgage hanging over me has weighed heavily at times. I am the primary earner, and if I lost my job we wouldn't have been able to service the loan in any way. At the time we purchased, i rationalised this saying it doesn't matter because if I lose my job we won't need to live close to the city and we can sell quickly due to the desireability of the property we purchased. So we will just sell and move back to the burbs. Whilst this is true, it is also true that the day you lose your job the last thing you would want to deal with is losing your home as well. We could also have rented it out to service the loan and lived cheaply somewhere on DWs income until I got a new job. I had all the answers, but the debt still weighed on me. I really didn't like it being there at all!

As it turned out, I didn't lose my job but instead my earnings continued to surge upwards and the mortgage is no longer a financial concern. We hit that sucker hard, and we became moustachian.

Today's concern is that we have done so well with our saving in the past 7 years that selling the house is now a quick path to FIRE.

We don't need a $2M home when a $700K home anywhere else in Australia would be more than fine. The only problem is that the ridiculously expensive house has become our home, and we love it there. We are at the heart of everything. Our friends are mostly in walking distance and our lives don't require us to travel more than about 5kms away very often. We are involved in a local sports club and don't want to break that tie. We are living temporarily OS but can't wait to get back to our life in Sydney.

Making the decision to sell up for FIRE is not proving easy, and saving an extra $1.4M to stay living in our house is a ridiculous notion. No way!!!

So, the moral of the story is be careful. You could lose big if the financial side bites, and even if you win (like we did) it could still end up that you will need to sacrifice something down the line.

In our case the decision is to either sacrifice our present (preferred) way of life that we love to FIRE, or to keep working for maybe 8 more years.

We would have achieved FIRE quicker by not relocating, but we may not have still been married to enjoy it together.

We are contemplating a 3rd option, which is to FIRE but target to earn a part time income equivalent to the additional rent of living in our expensive home ie: ($2.1M - $0.7m) x3.5% = $49K. The problem is that this rent charge alone is a lot. Not exactly easy and free part time work.

Today we can't decide. The decision becomes a real one from next June when we hit our " sell up and leave Sydney immediately FIRE number". We have no idea what to do.

stashgrower

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Re: Australian Superannuation Post Fire
« Reply #70 on: June 30, 2017, 01:03:08 AM »
Thanks, Itchyfeet. I found it helpful to hear the post-decision thoughts and the "side effects" to weigh up. Really pleased you enjoy your new home! Good luck deciding.

potm

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Re: Australian Superannuation Post Fire
« Reply #71 on: July 04, 2017, 12:43:53 AM »
Happy new financial year all.
With the super cap being lowered to 25k, the debate between whether to add more to super might be less of an issue now, because there's less we can add!

I've been maxing my super concessional caps for the last couple of years. Preservation age is a longggg way away from me but for me the decision was pretty simple. I was still saving significantly more outside super each year while maxing out the concessional contribution.
With a 5k reduction in the cap, I'm losing some tax benefits there but not unhappy about getting a bit extra in the take home pay.

marty998

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Re: Australian Superannuation Post Fire
« Reply #72 on: July 04, 2017, 06:14:17 AM »
Nice one Itchyfeet.

Whow knows... in a few years time you could have another million equity in the home and the decision will be even harder... after all, why kill the golden goose? >_<

Itchyfeet

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Re: Australian Superannuation Post Fire
« Reply #73 on: July 04, 2017, 12:15:30 PM »
Nice one Itchyfeet.

Whow knows... in a few years time you could have another million equity in the home and the decision will be even harder... after all, why kill the golden goose? >_<

The problem is that for as long as we consider it a home the capital gains mean squat. It could decrease in value by a million or increase by a million and it would make no difference.

It is only a golden goose if we sell and take the cash as fuel for our FIRE.

Otherwise it is just a $1.4m cost, which is a massive chunk of my total career earnings.

deborah

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Re: Australian Superannuation Post Fire
« Reply #74 on: July 04, 2017, 12:31:03 PM »
Ichyfeet, I assume that for the next year (until sell up and leave Sydney immediately FIRE number) you will be living OS. Perhaps, before you come back you could work out together what other places you may be interested in, and when you come back, you could spend some time (several weeks?) in each of the resulting short list to get to know the place and work out whether you could happily transfer there. We moved a lot when I was a kid, and I know I could find a home in a lot of places - even though I am a homebody. I think every Australian city is very high on the global livability index, when it is broadened to include the smaller cities. So there is a lot of world class cheaper central city living available.



steveo

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Re: Australian Superannuation Post Fire
« Reply #75 on: July 04, 2017, 08:43:16 PM »
Itchyfeet - that is a great post that I honestly think a lot of Australians on this board will be able to relate too. Our situation is not as extreme as yours. Our house is probably worth about $1.3 million. We've paid it off as well and if we downsized/relocated we would probably be able to retire.

We also have 3 kids - 6, 13 and 15 and we love the area that we live in. We are basically sitting on an asset that can enable us to retire if we change our lifestyle but at this point we don't want to do that.

I've changed my outlook now to be willing to work another 3 years in order to get to a 5% or lower WR. This has been tough to get to this outlook and even posting this makes me realise that work is probably not essential right now which makes me want to consider selling and retiring. My wife really doesn't want to take the easy sell and relocate option. My positive frame in relation to working for another 3 years (it could go up if the markets crash or we really feel like pushing to 4%) is partially based though on the house being a great option in relation to flexibility within my retirement phase. So if we start to struggle financially we can just sell the house and then we would be I think easily 100% financially secure.


Itchyfeet

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Re: Australian Superannuation Post Fire
« Reply #76 on: July 04, 2017, 10:24:21 PM »
Ichyfeet, I assume that for the next year (until sell up and leave Sydney immediately FIRE number) you will be living OS. Perhaps, before you come back you could work out together what other places you may be interested in, and when you come back, you could spend some time (several weeks?) in each of the resulting short list to get to know the place and work out whether you could happily transfer there. We moved a lot when I was a kid, and I know I could find a home in a lot of places - even though I am a homebody. I think every Australian city is very high on the global livability index, when it is broadened to include the smaller cities. So there is a lot of world class cheaper central city living available.

Thanks Deborah. FIREing and coming home next year is an option for us. We would still have 2.5 years to move back to our house to still advantage from the 6 year rule.

Several years ago (around 2013 I guess) we bought a house in Brissy with a view to FIRE there (before I even knew the term FIRE and before I came across MMM). We may still move to that place, which is worth < $600K so far more logical.

We are still debating.....