Vital Statistics
Occupations: Public servant, not in a paid job.
Income: $75,000.
Assets: House, $200,000; $150,000 in growth managed funds with AMP; $60,000 in growth managed funds in West State and AMP; car, $10,000; furniture, $30,000; share portfolio, $20,000; and a $5000 coin collection.
Expenses: $450 a fortnight mortgage repayments ($100,000 yet to pay).
Debts: None.
Goal: To retire in about five years to a comfortable life.
Nick and Polly are keen to retire within the next five years but want to ensure they maintain a comfortable life, with an income of $40,000 a year.
"Our financial habits are a bit all over the place," Nick says. "We are both impulsive spenders who have difficulty saving."
Nick salary sacrifices $13,000 into super each year. Polly is unemployed but looking for part-time work.
Nick's employer-sponsored super (government) has a multiplier end benefit of 2.8 times final average salary at age 55, which increases by 0.2 times for each year he works beyond this. He contributes about $9000 towards private super each year and 5 per cent of his salary into the government scheme. Both Nick and Polly have life cover.
They use their credit card for as many purchases as possible, but always pay the balance at the end of the month.
"I am probably a bit more of a risk taker than my wife, whose approach to investment is a bit more conservative," Nick says. "I am not averse to higher-risk investments like shares but I am conscious of the need to preserve capital, particularly superannuation.
"We find it almost impossible to budget," Nick says. "Unplanned expenses always crop up."
Andrew Garrigan, a senior financial planner with Peter Richards and Consultants and member of the Financial Planning Association, replies:
For Nick to retire at 55, he needs to budget for 30 years, based on average life expectancies. To ensure an annual retirement income of $40,000 for 30 years, Nick and Polly will need an initial lump sum of nearly $700,000.
Currently, it is unlikely that you could retire in five years and have an income of $40,000 a year without the very real risk of outliving your funds.
Delaying your retirement to 60 will increase the likelihood of achieving your goals. Then you will potentially have $703,000 available, after allowing for a mortgage of $24,000 and the potential need to buy a new car.
When Nick turns 60, a portfolio of about $630,000 could give you income through your retirement.
Given your impulsive spending habits, you need to think about a form of forced savings. You could consider regular super contributions for your wife and increasing your mortgage repayments.
You need to consult a certified financial planner, who belongs to the Financial Planning Association, to discuss your portfolio. You need to ensure you are both comfortable with the portfolio's asset allocation and that it has enough diversity.
One of the keys to wealth creation is eliminating your non-deductible debt as soon as possible. Repaying the mortgage is effectively like earning a guaranteed, after-tax return equivalent to the current mortgage interest rate. If you increase your mortgage repayments to $550 a fortnight, you will pay off the mortgage within 10 years.
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