Ok, before we even consider what we are investing in, we need to get some basic's under our belt. First up, when do you want this passive income to kick in?

If it’s before retirement age, you’ll need investments outside of super to bridge the gap. Super is tax-effective, but your access to it is restricted. Personal investments (like ETFs held in your name) offer more flexibility, but income from them is usually taxed at your marginal rate. Knowing when you want the money helps you figure out if you should invest in your personal name or Super (or, if your situation is more complex - you might want to speak to a professional about other structures, like Trusts you can own them in).

Now, let’s talk numbers - and the 4% rule.

The 4% rule is a pretty popular guideline to help you see how much you can withdraw from your investments each year without running out of money. It’s based on historical research over a 30-year retirement period, assuming your portfolio is well diversified (we never want all our eggs in one basket!).

So how does it work?

If you withdraw 4% of your total investment portfolio per year, your money should last around 30 years, even with market ups and downs. That means if you want $40,000 per year in passive income, you’d need around $1 million invested (because 4% of $1M = $40,000/year).

But... and this is important, the 4% rule is just a starting point. It doesn’t factor in:

• Tax on your investment income (important!)
• Your lifestyle or spending needs
• Whether your retirement might last longer than 30 years
• Ongoing costs like rent or health care
• Whether you’re happy to draw down on the balance over time, or want to preserve the capital

That’s why the real starting point is asking:

• What will you need to live on each year?
• How much of that needs to come from investments vs part-time work or other income?
• Will you be renting long-term? (Rent is likely to rise, so factor in year-on-year increases.)
• Will you be debt-free by then? (No mortgage could significantly reduce your annual expenses.)
• How long do you want this income to last - and what kind of flexibility do you want?

If you retire early, are you going to continue to add money into Super?

Let’s take an example:

If you expect to need $60,000 per year and want that fully funded by your investments, you’d need around $1.5 million invested using the 4% rule. But if you expect to continue some paid work, or your future living costs are lower (e.g. no mortgage), your number could be smaller.

🧱 Remember, Rome wasn’t built in a day. It will take time for your investment portfolio to gather momentum – but that's where the magic of compounding comes in (where your money makes money, then those monies make money and it starts to snowball... in a great way).

The earlier you start the better and if you feel like you don’t know how to invest, then know we teach you the 6 key steps to get invested (plus a bunch more) inside The Greenhouse. Doors open for our last intake for 2025 in just a few week's time.

Jess

Have a money dilemma?

Money dilemmas can be a nightmare! They can leave you up all night ruminating about what to do, have you feeling alone and isolated or just plain ol' stuck. So, we are here to help. I am going to tackle one a week and give you my unbiased, no BS general thoughts on how to tackle your conundrum. We would love for you to send yours (or someone you know) in. 

Obvs all of this is general advice only... especially important to note any and all of the comments above do not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs.