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How should we organize our finances to effectively plan and prepare for an retirement in next 10 years ?.

My personal details are:

  • Age 35, married with a 3 year old daughter
  • IT consultant with a masters degree, gross salary around 180K
  • Owns my family home (purchased for 430k, worth 620K now, no outstanding loan on it)
  • Has an investment property (purchased for 422k, worth 510k now, 290K loan remaining, and current rent 450/week covers all expenses)
  • Has another investment property (purchased for 520k, worth 650k now, with a 480k loan remaining, and current rent 500/week covers all expenses)
  • Has 150K in superannuation (pension fund/retirement fund, accessible only after the age of 60).
  • No credit card debts or other loans
  • Have a 10 year old car with no loan ( bought it 6 years back for 17k)
  • Has life/trauma/income-protection insurance with a premium of $250/month
  • Never purchsed any stocks/shares yet as there was no one to direct in that area

My wife's details are:

  • Age 30
  • IT consultant with masters degree, earns gross salary 120k
  • Has an investment property (purchased for 500k, worth 650k now, 300k loan remaining, current rent of 590/week covers all expenses)
  • Has given 20k deposit for a 378k block of land
  • Has 70k in a compulsory supperannuation fund (pension fund ,accessible only after the age of 60)

Our main expenses are:

  • 16.5K/year for daughters child care
  • 7K/year for overseas trip to visit parents/family
  • 500/month for bus, petrol, car
  • 350/month for mobile phones, internet, electricity,gas
  • 300/month insurance payments
  • 1500/month for groceries/baby items/restaurents
  • 200/month for cloths/ online shopping etc
  • 200/month for coffee

Total expenses are : around 60k

Our income:

  • After tax, expenses and superannuation deductions I get 10K
  • After tax, expenses and supperannuation dedcutions my wife gets 7.5k

Our aim :

  • We plan to work for next 10 years and have one more kid. And then plan to start an IT business or something else. Current work is very hectic and want to slow down eventually.
  • Educate our daughter in a descent school

Note :

  • We don't live frugal, we enjoy descent pleasures and we do travel every year to meet family

Our questions:

1) Are we on the right track ?

2) Are we doing any mistakes which we could have avoided ?

3) Please advice if there is something that we should focus more into !

4) What should we do to prepare for a comfortable retirement and saftey

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    You didn't specify where you are from, and it matters when discussing taxes, retirement accounts, etc. I am guessing Australia. Is that correct? Also, are your "Our income" amounts after the noted expenses, as well?
    – Chris W. Rea
    Commented May 22, 2015 at 12:26
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    I am reminded of a parenting question long ago from the parent of a 3week old. The mother sometimes didn't get any food until noon and some days didn't shower. My favourite answer was "you eat by noon every day and never miss more than one shower in a row? how about you give us advice!" If you are in your thirties and own three investment properties, a mortgage-free-house and a retirement fund while raising a child and taking expensive vacations, all with no debt other than that covered by rental income, how about you give us some advice? :-)
    – Kate Gregory
    Commented May 22, 2015 at 12:30
  • Pay off debt as quickly as you can is the only advice I can offer. Prioritise highest interest loans first.
    – davidjwest
    Commented May 22, 2015 at 13:51
  • So you're not planning on completely retiring, but cut back to a part-time IT consulting business or something else that's not full-time?
    – mkennedy
    Commented May 22, 2015 at 16:23
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    Start contributing extra into you super funds to build them up, then once you have $400k or more combined start a SMSF and start buying properties and stocks in it. Once you turn 60 you can access a tax free income from your SMSF. You can keep buying properties outside of super in the mean time.
    – user9822
    Commented May 23, 2015 at 12:21

2 Answers 2

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The biggest issue is your lack of diversification.

Your real estate investments have performed quite well so far, but you have also likely enjoyed a period of unprecedented growth that is not sustainable. In the long term, stocks have always outperformed real estate investments, which tend to track more closely to the inflation rate. You need more balance for when when the real estate market cools off.

You don't mention tax-deferred retirement savings accounts. You should prioritize your attention to these to keep your income tax low. Consider selling one of your investment properties if you can't adequately fund the 401k.

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Wow! First, congratulations! You are both making great money. You should be able to reach your goals.

Are we on the right track ?

Are we doing any mistakes which we could have avoided ?

Please advice if there is something that we should focus more into !

I would prioritize as follows:

  1. Get on the same page. My first red flag is that you are listing your assets separately. You and your wife own property together and are raising your daughter together. The first thing is to both be on the same page with your combined income and assets. This is critical.

  2. Set specific goals for the future. Dreaming and big-picture life planning will be the foundation for building a detailed plan for reaching your goals. You will see more progress with more sacrifice. If you both are not equally excited about the goals, you will not both be equally willing to sacrifice lifestyle now. You have the income now to be able to set yourselves up to do whatever you want in 10 years, if you can agree on what you want.

  3. Hire a financial planner you trust. Interview people, ask someone who is where you want to be in 10 years. You need someone with experience that can guide you through these questions and understands how to manage your income stream.

  4. Start saving for retirement in tax-advantaged accounts. This should be as much as 10%-15% of your income combined, so $30k-$45k per year. You need to start diversifying your investments. Real estate is great, but I would never recommend it as this large a percentage of net worth.

  5. Start saving for your child's education. Hard to say what you need here, since I don't know your goals. A financial planner should assist you with this.

  6. Get rid of your debt. Out of your $2.1M of rental real estate and land, you have $1.4M of debt. It will be difficult to start a business with that much additional debt. It will also put stress on your retirement that you don't need. You are taking on lots of risk here. I would sell all but maybe one of the properties and let it cash flow. This will free up cash to start investing for retirement or future business too. Buy more rental in the future with cash only. You have plenty of income to do it this way, and you will be setting yourself up for a great future.

At this point you can continue to pile funds into any/all your investments, with the goal of using the funds to start a business or to live on. If all your investments are tied up in real estate, you wont have anything to draw on if needed for a business opportunity. You need to weigh this out in your goal and planning.

What should we do to prepare for a comfortable retirement and safety

You cannot plan for or see all scenarios. However, good planning will give you more options and more choices. Investing driven by fear will set you up for failure.

Spend less than you make. Be patient. Be generous.

Cheers!

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