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💰 A $1 million portfolio, how this CFP invests for income | Passive Income [4/5]

This episode of Rask's Passive Income series on The Australian Investors Podcast features Owen Rask and Drew Meredith, CFP talking about a $1 million portfolio.

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Part 4/5 of the Passive Income series on The Australian Investors Podcast features me — Owen Rask — and Drew Meredith, CFP

Drew and I walk through a full case study (see below) of a fictitious Australian couple, Ralph (52) & Jane (51), looking to generate passive income from a diversified portfolio. The result: Drew predicts this couple could retire on a generous yearly income if they can get to $1.2 – $1.6 million of investable assets before retirement.

Does that sound like a crazy figure? Not so fast…

Drew explains all of his findings and analysis in this episode of The Australian Investors Podcast.

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The case study – Ralph & Jane

Jane (51) and Ralph (52) live in Brighton-Le-Sands, New South Wales in a 4 bedroom, 2 bathroom house. Ralph is a sticky-fingered accountant, earning $110,000. He loves the Hawthorn Hawks in the AFL (obviously) and spends his weekends watching their two boys play sports. Jane is a Midwife in Sydney, working 7 days of night shift every fortnight. She earns $115,000, also on PAYG. Jane uses some of her days off to volunteer at the Foodbank, encouraging her two sons to get married and have children. 

Financial picture

Assets: 

  • Super: 
    • Ralph annuation: $340,000
    • Jane: $260,000
  • House in Brighton-Le-Sands: $1.4 million
  • Investment portfolio of $185,000:
    • Argo LIC – $35,000
    • VAS ETF – $50,000
    • IVV ETF – $30,000
    • Magellan ETF – $20,000
    • BHP – $25,000
    • CBA – $20,000
    • Crypto ETF – $5,000
  • Cash & TDs: $70,000
  • Offset account: $35,000

Liabilities: 

  • Mortgage: $450,000
  • Credit card: $8,000
  • Two boys (17 & 19) – both living at home, for 1-2 more years
  • Car loan: $34,000

Other:

  • Insurance is held inside Super
  • Ralph is an only child and could be expected to inherit $300,000 in 5-10 years

Goals:

  • They’ve heard they could retire and earn a passive income of around 4% per year, after inflation. They’re hoping to earn between $60,000 – $80,000 in income (today’s dollars)
  • Both want to retire between 60 and 65, debt-free (that’s ~10-15 years)
  • They don’t want to move or sell their house, but would be open to downsizing after retirement or once the kids have moved out
  • Being an accountant, Ralph is risk-averse so he is much more concerned about capital loss than Jane – she is a high risk/growth investor
  • Jane & Ralph would like to spend 4 weeks per year on a holiday, locally and internationally after 60 (i.e. every other year they go to Europe, NZ, etc. — not lavish, but comfortable) 
  • Jane would like to build wealth outside of Super and the house, Ralph likes the tax-advantaged status of Super

My questions for Drew:

  • Logistically, how does a financial planner take a client(s) from this to a well-structured portfolio? (i.e. the financial planning process)
  • Would you say Ralph & Jane have a typical financial situation for their age? 
  • What are the 2-3 “easy wins” for Ralph & Jane? 
  • For Jane, would you recommend building an investment portfolio outside Super?
  • For Ralph, would you recommend building an investment portfolio outside Super?
  • General question: at what age does the risk of allocating to Super (i.e. money being locked away) get overcome by the benefits? I.e. Would you advise a 30 or 40yo to use Super as their primary wealth vehicle? 
  • Would you advise paying down debt or using the equity in other ways (e.g. line of credit)?
  • Could Ralph & Jane grow their portfolio in other ways? 
  • What balance of wealth ($$$) would Ralph & Jane need to retire with passive income at 63? Explain.
    • How would you advise they invest now (SAA)? 
    • What types of returns could they expect over the next 10+ years? (maybe a chart of wealth would help)
    • At retirement, how would their portfolio look in terms of diversification?
    • Would/should they keep working, even part-time? 
  • Do you believe Jane & Ralph have a realistic expectation of retiring debt-free and with $60-80k in annual income?

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