Paul’s verdict
Iam 56 and my wife is 48. We have a son, 18, and daughter, 22. I work in the mining industry earning $125,000. I have $660,000 in super and my wife has $70,000; we own our home valued at $500,000 and have no debts.
We have $240,000 in an online savings account and $275,000 in an MLC wrap account in balanced funds; these assets are in my wife’s name as she is not in the paid workforce. We also have $70,000 in shares.
I plan to retire or find part-time employment at the end of this year. Our daughter has severe autism and needs 24-hour support; I would like to help my wife more as it is becoming increasingly difficult.
I am concerned that we may not have sufficient funds to live off assuming we need about $60,000 a year. My daughter gets a disability pension that just sits in a bank account.
I sought professional advice without much success. The latest advice cost $4000 and essentially said to work to 65 and increase our life/TPD by $1 million (they get commission). Colin
Hi Colin, I am really cranky about you paying $4000 to be told to buy more insurance and keep working! I reckon we can do better than that for zero cost and also no conflict of interest. Your experience is a good example of what is wrong in the advice industry. Hopefully there was a bit more in the advice than flogging you insurance but I do despair.
It is a really difficult situation with a disabled child, and you wanting to be at home to support your wife tells me a lot about your relationship and family dynamics. At the end of the day these quality relationships beat money hands down.
What is pleasing, though, is that you’re in good financial shape. You own your own home. You have $585,000 in shares and savings, plus $730,000 in super. Your daughter’s pension is building up, which is a good way to save for her future.
So you have total investment assets of $1,315,000. This is a solid amount. To generate $60,000 requires an earning rate of 4.6%. Spread across both of you and with some coming from super you should pay no tax. Then we need to think about inflation, as it is important to protect your capital. This is currently about 2.5%, so you would want your funds to earn around 7% a year.
Over time this is quite realistic. As an example, it is quite easy to invest in shares paying higher dividends that would give you over 4% in income a year; with franking credits you would in effect earn over 5%. Then these shares only need to grow at about 2% a year to get you to your 7% goal.
My view is that you are already in a position to generate the $60,000 a year. However, it does make sense for you to take a part-time job until you are past 60. I suspect this would mean you could leave your super to keep growing until you are past 60, because a combination of earnings on your money outside super, plus your part-time income, would meet the $60,000 needed.
I have no expertise here at all but is there further help for your daughter via the NDIS or other community support?
I am not really sure you need much in the way of advice. You are doing a good job yourself. I like your mix of investments. You hold property in the form of your own home.
Hopefully your super is in a growth or balanced fund with a large manager with low costs. This is important. Large managers have scale, meaning lower fees. I really don’t want you paying more than 1% a year for a balanced super strategy, and many managers are much cheaper than this. While we are on super, check out what insurance you are paying for inside your fund. If you need more, then it should be cheaper to buy it inside super as this will be a much lower cost “group policy”.
In your own name you hold some shares and the MLC balanced fund. Again, I would look at the MLC annual charges to make sure they are low. You may find they have a newer balanced fund with lower fees you can transfer into.
Do remember that managers like Vanguard offer balanced indexed funds with negligible fees. The newer online companies, such as InvestSMART (note I am biased – I am chairman of this company), offer actively managed funds, typically at fees of under 1%. Others include Stockspot and SixPark.
Finally, it makes sense to me for you to hold a fair bit of cash, in particular as you change to a part-time job.
Colin, I hope this is of some help. At least it did not cost you! But, seriously, you are in great financial shape. By investing as you are across diversified assets, and with a bit of basic tax planning to ensure you draw your super pension tax free in time to come, which your fund will help you with, my view is that you have sufficient assets to supply the income you need.
A part-time job for a few more years will allow your super to keep building, which has to be a good buffer. My best wishes to you, your wife and your family.
Paul’s verdict: Such a solid asset base should give you $60,000pa A part-time job would allow super to build, creating a useful buffer