How to make retirement plans at 30
A COUPLE just about on the financial finishing line at 30 should avoid confusion and stress by setting up a family trust, writes Barefoot Investor.
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A COUPLE just about on the financial finishing line at 30 should avoid confusion and stress by setting up a family trust.
MAX ASKS: My wife and I are both 30 and we are lucky enough to earn a combined $350k per annum. Our living costs are $40k a year now, though kids may happen. Last year we paid off our mortgage, and we have a combined $200k in savings and $130k in super. We grudgingly admit that some risk is necessary, but find investing stressful and confusing, so we want minimal involvement. What is the best low-stress, set-and-forget strategy to retire on our own timeline (not when the government lets us access super)?
BAREFOOT REPLIES: At the tender age of 30 you’re basically at the financial finish line, while most of your mates are still on the starting blocks. Respect. Also, your living expenses are very low for your income. More respect. Here’s my practical advice: set up a family trust and invest a set amount into low-cost listed investment companies (LICs) or direct shares every single month. That’s how you take the confusion and stress out of it. Keep it simple, and it’s likely you’ll be multi-millionaires by the time you hit your 40s. From that point on, your life won’t materially change — regardless of how many millions you eventually pile up. So I’d encourage you to do a little exercise: imagine you’re sitting side by side in rocking chairs 40 years from now, looking back at your lives. What did you devote yourself to? Who did you help? What change did you make? What are you proud of? Then do it.
PAINFUL DRAM
FRASER ASKS: In one of your recent newspaper columns you exposed the Tasmanian whisky operator Nant Distilling Company, warning your readers to steer clear of them. I was not so lucky. I have $15,000 invested with Nant, and I am finding it all but impossible to get them to honour their “buy back” promise, even though I have abided by the agreement. I have rung the company at least 20 times. I even had an email from an operations manager agreeing to pay me out, but he has since left the company, so I am back to square one. Is there anything you can do?
BAREFOOT REPLIES: What can I do? Well, I’ve warned investors (and retired cricketer Matthew Hayden, who was spruiking for them) just how horrible I believe this business is. Seriously, an investment in Nant is much the same as a teenager’s first binge-drinking experiment with whisky — in both cases you’re likely to end up shivering in a dunny, covered in vomit. Sadly, I don’t think you’ll get any help from the regulators either. Reason being, when I was investigating Nant they were at pains to point out that they weren’t marketing an investment product, which would see them regulated by ASIC, the corporate cops. Instead they argued that they are simply selling whisky. Yet here’s Nant’s pitch to SMSF investors taken directly from their website: “Our unique barrel buyback program offers you an equivalent return of 9.55% compounded annually, paid when you sell your barrel back to Nant after four years maturation.” So what happens if Nant decides not to buy back the barrels? Well, you’ll get … nant! The worst thing about Nant is that they’re still flogging their investments — sorry, whisky barrels — to unsuspecting investors, even though it appears they’re not paying out existing investors like you. Seriously, though, I called Nant on your behalf, and they assure me that “everything is fine”, and that you’ll get your money back, in a few months. Perhaps. Maybe. Depending on the maturation process (and testing) of your whisky.
NO INTEREST HERE!
TONY ASKS: When are you going to apologise to your readers for your stupid advice!? They really will be “barefoot” if they keep their “Mojo” in a savings account, now the Reserve Bank has cut interest rates to a historical low of 1.75 per cent! They won’t even have money to buy shoes!
BAREFOOT REPLIES: I’ll take your exclamation marks and raise you! In all the time I’ve been Barefoot, I’ve never had anyone write to me and say “You bastard, Barefoot! The worst thing I ever did was take your advice and save some money so I could get some financial breathing space!” Seriously, Tony, I view my Mojo savings the same way that Warren Buffett sees the $US20 billion he has perpetually parked in zero-per cent-returning US treasury bonds: the return is peace of mind ... and the ability to be greedy when other people are fearful.
FACTOR THE FORMULA
NIKKI ASKS: I like your stuff and follow it pretty closely. As a result of that, and some hard work, we are doing okay. We have just started our own business, but because we’re starting out we don’t draw a wage for my husband, so my job pays the bills. We’re making money on paper, though cashflow is a killer. I get the idea of your 60/20/20 Rule when there’s a consistent income — but where on earth should we start when one of us is self-employed?
BAREFOOT REPLIES: The 60-20-20 Rule involves screwing down your living costs to 60 per cent of your income and then devoting 20 per cent to savings and 20 per cent to splurging. And you know what? It’s actually the perfect plan for people on a variable income. Why? Well, you may not know how much money you’ll earn, but you know how much you have to spend to keep the lights on and beer in the fridge. Your business needs to cover that figure, and your superannuation, as a minimum. If it’s not, make changes in the business until it does, or, if it’s never going to happen, get out of the business. When you earn more than your basics, plough that money into your savings. As a small business owner myself, I have three months of personal living expenses and three months of business expenses sitting by. Being your own boss can be brutal — so stack the odds in your favour.
The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice
Originally published as How to make retirement plans at 30
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