Can we travel in retirement and still leave something to our children?

My wife and I, who are both healthy, will soon be 65 and are planning to work part-time for the next five years, together earning $40,000 net. We own our home worth $2 million, have a combined super of around $2 million, $450,000 in cash and shares, and a holiday home worth $750,000 earning $10,000 a year. We expect to spend about $75,000 a year to live on, plus up to $35,000 each year while we’re fit enough to travel for the next 20 years. Can we do it all, hang onto the holiday house, and still leave something to our children?

At age 65, your wife has a longer life expectancy of around 23 years. This is an average and, being healthy, you could budget for another 5, so 28 years all up.

If you’re hoping to retire and travel the world, how much will you need to ensure you still have some inheritance left?Credit:Michele Mossop

Assuming you spend $100,000 a year, indexed to 2 per cent inflation (a low estimate to allow for reduced spending over time), you will go through $2.25 million if your investments earn 5 per cent a year after tax, or $3.1 million if your funds average 2.5 per cent.

The real problem will be if one of you has to move into aged care and the other one stays in the home. You’ll probably end up selling the holiday home in a couple of decades.

I’m a single, 67-year-old woman, in reasonable health. I’ve owned my home, in a popular inner suburb, for 32 years and hope to stay for perhaps another 8-10 years. I receive super pensions totalling $6900 per month, and I seem to need all of that, given the rising costs for everything. In 2017 with changes to superannuation, I had to adjust what I had in super and transfer $150,000 to a new account as I was over the new limit. Recently, I received an inheritance of $490,000. How can I preserve this inheritance for the future?

It would appear that, in 2017, you had some $1.6 million in super, a paid-off home and then $150,000 in an accumulation account.

Looking ahead, if you were to move to a retirement village and subsequently to an aged care residence, this would presumably be financed by the sale of your inner-city home, as you don’t mention you need to worry about any dependants.

If you were able to sell your home for, say, $1-$2 million, this could cover the refundable lump sum entry cost, although this can rise well above $2 million if you decide to go really upmarket.

You would then use your super to cover ongoing costs. These would be a standard basic daily care fee (currently $20,758 a year, but indexed to inflation) and possibly the maximum means-tested fee for well-to-do entrants (currently $30,574 a year for a maximum of 2.4 years) plus a non-regulated extra services fee (which can reach $100 a day or $36,500 a year).

So if you were to budget for, very roughly, $100,000 a year for 2.4 years and $60,000 a year thereafter in an upmarket aged care residence, your current assets should cover these.

Other readers without this level of assets shouldn’t despair, there is a wide variety of entry lump sums, known as refundable accommodation deposits(RAD) in the jargon, and a partial RAD can be used to pay the interest on the unpaid amount.

To invest your inheritance in current market conditions, with a possible recession ahead, I suggest placing one-third into each of one, two and three-year term deposits, or fixed term annuities, and as each matures, roll it over into a three-year term. This gives you security of capital, additional income and the flexibility of accessing one third each year if the stock market has bottomed, and you later decide to invest more aggressively.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. All letters answered. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00.

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