FI in Oz

[Aussiegirl]

Hiya,

I'm interested in knowing what other Australian members think they need in Income and the asset base the need to FIRE? 

There's some price differences between countries that would influence these numbers.  for example, my 2 bed villa (small, old and un-renovated but good location) is $350 per week to rent.   To buy a place probably starts at around $350k with the average perth house price being over $500k.  And god forbid you happen to live in Sydney!

What do other Aussies think?

[FFA]

Hi aussiegirl, it really depends on your circumstances. Rent is only one part, theres all your other living costs. As a starting point take your current annual spending budget for all expenses. You need to modify for any known changes, eg. Baby on the way. And you might want to add a safety margin too, eg. 10-20% buffer.

Asset base to generate this, as you can read in this blog most people use a rule of thumb to multiply this income by 20-50, depending how aggressive-consrrvative you are in your investing.

If you just want very general numbers you can find them published for singles/couples with modest/comfortable lifestyles.

[Retired To Win]

Hiya,

I'm interested in knowing what other Australian members think they need in Income and the asset base the need to FIRE? 

There's some price differences between countries that would influence these numbers.  for example, my 2 bed villa (small, old and un-renovated but good location) is $350 per week to rent.   To buy a place probably starts at around $350k with the average perth house price being over $500k.  And god forbid you happen to live in Sydney!

What do other Aussies think?

Well, I'm not an Aussie.  But I do see that, based on your numbers above, one can either rent a place for $1400 a month or buy it for $350,000.  So to buy takes a 250 times multiple of the rental cost.  If that is right, then the Australian rental and owner housing markets are a bit upside down, it seems to me.

I own a $200,000 house in the southeaster USA and I'm pretty sure its rental value is between $$2000 and $2500 a month.  So at most we're taking about a 100-times rent multiple to buy.  Australia would seem to be way over that.

[happy]

Retired to Win - yes that's right Down Under, in a major city, usually  a good yield for the rent pw is about 1/1000 the buying price i.e. $350 rent for $350k house. On the other hand various tax structures are different here, making buying a home better value than it might appear (see http://forum.mrmoneymustache.com/investor-alley/australiausa-mustachian-philosophy-differences/msg563754/#msg563754 - if you read the Aussies posters in that thread you'll get some idea of our perspective).

Aussiegirl, there are so many variables, but this is just how I think about it:

- paid off house (tax free capital gains are important to me as I am a high income earner,as well as the emotional reasons for owning)
- benchmark essential or core living expenses to the Old age pension ( or other bennies, they're roughly the same) i.e. about 22k for a single or 33k for a couple. A lot of Aussies here seem to be able to live within this range. This is what the Aussie govt gives people to survive with and it includes rent. So I think if you take housing out it should be readily doable for mustachians.
- add buffer according to preferences and what you can budget into the basic category e.g. additional travel budget, buffer for the unforeseen e.g. the market crashes,  excessive maintenance/replacement costs above what you have budgeted for in basics, OMY buffer!, scaredy- pants buffer!,  absolutely never going to work another day in my life for the next 70 years buffer. Whatever you get the idea.
- its said that its harder to live off 22k as a single, than the 33k as a couple, so if one is finding it hard to stick to the 22k , add another  2-3k?? Oh, and if you have kids, work out what extra the govt would throw your way if you were on bennies and add that to your baseline.

So as a single somewhere between 550 - 725 k ( 3-4%WR), plus whatever extra buffer you feel comfortable with. Personally I'm thinking maybe another 15k/year which would be another 375 - 495k " good sleep at night" money.

Housing is the confounder. Its SO expensive in all the major cities, yet in most states ( maybe Qld a bit of an exception with all its coastal cities) once you move out of the city  to where houses are cheaper there is a huge loss of infrastructure within reasonable travelling distance: I mean schools/hospitals. Depending on your life stage, living LCOL may not be very suitable, or come at some other fairly hefty social costs.

[Aussiegirl]

Retired to win - housing is out of wack here, but has been for as long as I have been investing.  We have taken advantage of that though, built a tidy little investment property portfolio which is now starting to pay itself off (not so great for tax!)

Happy- check to the paid off house in a LCOL spot.  Amenities as we age are important to us, so we've stuck with a big regional centre.  Still a LOVELY house there costs the same as the 2 bed unit we live in Perth.  I am a firm believer that a paid off house before you retire is a MUST.  As I say above, we've got a bit of property, plus super, which are our "traditional retirement assets" - what I struggle with is how much liquid assets (shares n cash) we need for the ER segment.   If we're budgeting $75k pa (very comfortable lifestyle for 2) and I aim for 25 times that in ER assets, then we're being very conservative.  Should I aim for 25 times our "basic needs" category, which is $55,000?  Means the difference between having to accumulated $1.8m vs $1.3, quite a difference!

[alsoknownasDean]

How can you spend $75000pa without a mortgage? That's an awful lot!

I've seen in other threads a suggestion for a lower SWR in Australia.

Regarding the whole housing thing, it may make sense to live in a capital city for a while (even buying) and move to a regional area upon FIRE. No point moving to a LCOL area if the unemployment rate is three times that of the capital city (not to mention some professions being non-existent outside of major cities).

[marty998]

$75k pre or post tax?

[happy]

I agree a big regional centre is likely the sweet spot, I live in one too.
So re-reading the OPs post, your IPs are going to produce income later?, so you still need to cash-flow the earlier part of your RE?

I've wondered whether I should calculate differently for a 30 year period, say compared to a 60 year period if you ER say at 30 or so? I'll probably be 60 isn, so I might need 20 - 40 years of money. If I die at 70 I'll be annoyed. So I am going on 4%. But if I FIRED at 30, I'd definitely go for 3%. And the second part of that is, that I'd build in enough buffer, and be pretty careful at the beginning so as to keep the stash increasing, like Retired to Win's idea of having 1/3rd over. The line between ever increasing stash, and a stash starting to dwindle is fairly fine, so as long as you can not draw down capital, and keep it increasing above inflation, things look good.

This won't apply to young-uns, but for me, I'd like to bench mark the OAP, because if I ran out of money,  provided the rules are the same, I'd be eligible and so worst case scenario, I wouldn't need to change much because I'm already living on the OAP amount. In fact I have a small lifetime pension @65, so I'd be living on a bit more than OAP.  I fully intend to be independent of the state, but its a margin of safety that gives me some comfort ITSHTF.

[marty998]

Happy - assuming you're not over the assets test, you'd be eligible a part OAP long before you run out of money. So this actually helps preserve your capital as you don't have to draw down as much - you can use the part pension to fund what you'd otherwise be taking from your 'stash.

More margins of safety...

[happy]

Yup, your right Marty998…hey why don't I resign now!

Sorry OP to get off topic…it all got started because I too am wondering about how to conservative to be for a period of  30years instead of 50-60.

[Aussiegirl]

How can you spend $75000pa without a mortgage? That's an awful lot!

Alsoknownasdean - I did say it was a very comfortable lifestyle.  Includes overseas travel, upgrading technology etc.  it's our first pass budget, if we'd spend less then clearly the kids will be happy when we drop off the hook!  I suspect that in the early years when we're active we'll spend that budget, but in later years we'll not spend it all.

I agree a big regional centre is likely the sweet spot, I live in one too.
So re-reading the OPs post, your IPs are going to produce income later?, so you still need to cash-flow the earlier part of your RE?

I've wondered whether I should calculate differently for a 30 year period, say compared to a 60 year period if you ER say at 30 or so? I'll probably be 60 isn, so I might need 20 - 40 years of money. If I die at 70 I'll be annoyed. So I am going on 4%. But if I FIRED at 30, I'd definitely go for 3%. And the second part of that is, that I'd build in enough buffer, and be pretty careful at the beginning so as to keep the stash increasing, like Retired to Win's idea of having 1/3rd over. The line between ever increasing stash, and a stash starting to dwindle is fairly fine, so as long as you can not draw down capital, and keep it increasing above inflation, things look good.

Yes IP will produce income in later years, they're still paying themselves off at the moment.   So I need other assets for ER.  We'll be mid 40's if we FIRE on schedule, with 25 odd years till pension / super.  That's the average retirement length for people retiring at usual age! Makes me think that I need to aim for at least 20 x annual income.   But you're right, we'd have to be careful in our early years.  If there was a market down turn, it would play havoc with our stash.