Overall LVR since buying my 'off-the-plan' $1MM apartment five years ago

Looking at the breakdown of my overall NW chart in networthshare, the amount of debt ($1MM) I took on relative to my NW ($2.35MM) at the time was quite adventurous. The LVR was 42.5%, which was quite high (similar to the gearing levels I had used for my margin loan share portfolio prior to the GFC). But fortunately you can't get a 'margin call' on a property mortgage (as long as you keep making the required monthly payments). In the five years since making that purchase decision the unit construction was completed, the loan settled (so the loan was established and repayments commenced), and mortgage interest rates have climbed considerably. But at least the apartment valuation is more than I initially paid, and while I get a hefty tax deduction via negative gearing (mostly due to the depreciation schedule) the actual cashflow cost 'out-of-pocket' is relatively modest (at least for another couple of years while the loan remains in 'interest only' mode).

The unit was initially rented out for $850/wk (about $50/wk more than similar units due to my allowing the tenants to have a pet dog), and the rent wasn't increased last year when the first tenants moved out and I decided to not increase the rent in order to get new tenants as quickly as possible (they actually moved in a couple of days after the previous tenants vacated). The managing agent did the annual rent review last month, and had initially suggested that I only increase the rent by $20/wk. I pointed out that the comparison rents they had based this on were for apartments on the lower levels (with no city or harbour views), and those units probably didn't allow pets. So I requested the rent be increased by $38/wk (to a nice 'auspicious' rate of $888/wk - which was slightly ruined by the agent only citing the equivalent monthly figure on the rent notice given to the tenants). This was still a rather modest overall increase of only 4.5% over two years considering that Sydney rents have generally risen by over 6% in just the past 12 months.

Due to the outstanding loan balance saying at roughly $1MM during the past five years, while my NW has increased to $4.6MM over that period, the overall LVR for my entire 'portfolio' has now decreased to a much more conservative 21.7%.

Next year I might use some of the cash sitting in my my mortgage offset account to have a self-contained 'granny flat' extension added to my 'lake house'. Initially we would be able to use the extra space when we visit during the holidays, as my parents are planning to move into the lake house next year (so it will be quite crowded if we all visit at the same time). Eventually we could continue to use the 'granny flat' extension for weekend visits if I decide to rent out the main house when my parents eventually move to Sydney to be closer to health services. Someone with a horse was interested in renting the property last year, and it could probably rent for around $600/wk - which would cover the property expenses (rates, insurance, maintenance etc.). and would repay the cost of the granny flat extension in only a few years. I could then continue to use the rental income as another retirement income stream if we end up only visiting the lake house (granny flat) occasionally after I retire.

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Net Worth - SEP 2024

Chart updated to end of SEP in sidebar.

Stocks/cash increased $1,593 (+0.55%) to $293,163

Retirement savings (SMSF etc) increased by $31,493 (+1.70%) to $1,889,419.

Est. valuation of our home (my half) increased by $7,126 (+0.59%) to $1,211,345. The 'Other real estate' (my 'lake house' and the investment apartment) also increased by $1,429 (+0.07%) to $2,161,645. The estimated value of my investment apartment actually dropped, but this was offset by an increase in the estimated valuation for my 'lake house'.

Other assets (my online depository bullion account at Perth Mint, and the bullion value of my gold and silver proof coin collection) increased by $1,587 (+3.51%) to $46,865 due to a spike in gold and silver prices..

Overall, NW increased by $43,228 (+0.95%) to $4,610,452 during September.

The Perth Mint Online Depository website has a new Portfolio History view that I hadn't noticed before (it might be a new feature) that looks quite nice. But the overall upwards trend is mostly due to my regular savings plan (which I resumed a few months ago, after pausing for a while. The plot of monthly bullion prices gives a better indication of how gold and silver prices have done quite well since I opened the account (although Platinum has been rather disappointing -- starting out relatively cheap compared to its historic price relative to gold, and not improving at all. I have no idea why platinum is doing so poorly -- I thought it had a better use-case compared to gold, but that might mean it is simply priced as an expensive commodity for industrial use, so doesn't benefit from the same speculative pressures as gold and silver? I might increase my monthly savings plan by $100/mo and resume making monthly Platinum purchases, but it is less convenient to buy Platinum than gold or silver, as you can only setup an automatic purchase schedule for gold and silver, but platinum purchase orders have to be entered manually during trading hours.

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Net Worth - AUG 2024

Chart updated to end of AUG in sidebar.

Stocks/cash increased $4,751 (+1.66%) to $291,570.

Retirement savings (SMSF etc) increased by $4,445 (+0.24%) to $1,857,921.

Est. valuation of our home (my half) increased by $22,672 (+1.92%) to $1,204,219. The 'Other real estate' (my 'lake house' and the investment apartment) also increased by $39,832 (+1.88%) to $2,160,222. The estimated valuations bounce around quite a bit from month-to-month depending on sales in the relevant suburbs, so I suspect the precision of these monthly figures is +/- 2%, and the accuracy perhaps +/-10% or more. But at least using a consistent methodology should provide a reasonable trend indication and magnitude of changes in valuation from year-to-year.

Other assets (my online depository bullion account at Perth Mint, and the bullion value of my gold and silver proof coin collection) decreased by $365 (-0.80%) to $45,278.

Overall, NW increased by $71,335 (+1.59%) to $4,567,224 during August. Tracking NW monthly changes often feels a bit like playing snakes & ladders or Monopoly. A lot of fun during the 'up' months, but not so much fun during rough patches.

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Why delay retirement?

The other part of Moomin's question about my budget review post was why I don't retire now, since I can afford to?

There are basically two main reasons:

1. I don't mind working - the job is moderately interesting, moderately easy, and moderately well paid. Of course there are aspects of the job I find tedious, difficult or annoying (on occasion), but nothing to the extent that makes mee feel like sending in an "I quit!" email to my boss. And I suspect I would find retirement a bit boring. Once you have enough saved up to retire whenever the urge takes you, continuing to work can seem less onerous (paradoxically, having FU money reduces the urge to say FU -- a lot of office politics and incompetent co-workers become rather amusing when you can take it or leave it).

2. There are financial benefits to working (no surprise there!). This can be considered in two parts - the impact on my financial situation when I do retire (and during retirement thereafter), and the impact on my non-retirement investments (my 'estate' or 'net worth'). This impact can be larger than some might intuit, so I did a quick spreadsheet model to illustrate an example (of the retirement income part).

Scenario: Currently aged 65 with a superannuation balance of $1.2MM. Can either retire in 12 months (just before turn 66), or keep working for a few more years.

Assumptions:

All figures in current $ (ie. real (inflation adjusted) returns, salary increased with cpi, etc.

Current salary is $120Kpa and will remain constant (cpi increases only) until retire

SGL rate is 12% of salary, and is taxed at 15% going in to super

At age 65 can rollover the super accumulation balance into 'pension phase' which will have a 0% tax rate on earnings or capital gains within super, and the pension payments are not taxable income. (This might be easier to do with an SMSF than if you are in a retail superannuation fund).

The pension payments received while still working are the min required withdrawal rate, and are fully recontributed into super as an undeducted contribution (ie. the TSB remains below the TBC).

The super investments have an average real rate of return of 8% (you can comment about how totally unrealistic this assumption is!)

From retirement onwards the annual tax-free pension withdrawn from super is set for each retirement scenarui ti be a constant amount that will completely exhaust the super balance at life expectancy (age 87).

Modelling results:

As shown below, if retire at the end of year age 65 the super could provide theoretically provide an annual income each year of $128Kpa during 22 years in retirement (ignoring variability of returns, sequencing risk, lifespan uncertainty/longevity risk, legislative risk/changes to tax-free pension rules etc.)

Delaying retirement for one additional year would mean an extra year of SGL contributions, and the pension paid out during that year would have been recontributed as an NCC. So the super balance would have benefitted from an extra year of contributions and one less year of withdrawals, and the money that would have been withdrawn and spent can instead remain invested in super and enjoy 22 years of tax free compound growth. This increases the annual retirement income by 10.9% while reducing the years spent in retirement by only 4.5%.

Every extra year of working and delaying retirement reduces the number of years that will be spent in retirement, but boost the retirement income available each year during retirement. On the graph this appears to be a very simple trade-off between years of retirement and retirement income during retirement, but the decrease in years in retirement is linear, while the increase in retirement income is an exponential curve.

So, delaying retirement to age 71 would result in a 27% decrease in years of retirement, but a 90% increase in annual income while retired.

The big questions (with unknown answers) are:

* how many of those retirement years will be 'go-go' (healthy and active), 'slow-go' (healthy but less active), and 'no-go' (inactive and/or with health issues)? The 'lost' retirement years due to delaying retirement are all some of the 'go-go' years, so if you want to spend the first few years of retirement doing international travel and heliskiing NZ and Japan or trekking up to Machu Pichu, delaying retirement might not be such a good idea. Then again, you might not have the retirement income to fund the 'go-go' years if you retire too soon.

* how much do you need/want in retirement? There isn't much point working to have a bigger retirement income if you don't need/want the extra retirement income (but you may also be happy to use any 'surplus' retirement income to add to your estate/NW during retirement -- depends on your goals in retirement.

* longevity - planning for a life expectancy of 87 is just a wild guess. If you die at age 73 then working until age 71 might seem like a poor choice to those who survive you (but you won't be around to care). Then again, you might live to age 104 like my great-grand-Aunt, and enjoy 'go-go' retirement until age 100 or so. In which case retiring at 65 and expecting to only need retirement income to last until age 87, and to only have ten years or so of 'go-go' years, might result in relying on the Age Pension or selling other non-retirement assets during those 'extra' years. You probably won't complain about still being around in your 90s, but a decision to retire at age 65 might look sub-optimal in retrospect.

There are also some ancillary benefits of retiring a few years later and with a higher super balance - purchasing a lifetime annuity provides more feasible to secure a larger fraction of the desired retirement income, reducing longevity risk quite significantly for every extra year of work.

Finally, the modelling doesn't include the impact of working a few more years on accumulation and growth of non-retirement assets. For example, while working a significant fraction of my salary can continue to flow into non-retirement savings such as adding to my Investment Bond and to my investment property offset account (so there may be no net mortgage balance by the time I retire). Whether or not this is any incentive to work a few more years depends on what your financial goals are.

Some scenarios:

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