What probability of disaster would you accept in a retirement plan?

If your financial advisor proposed a retirement plan that had a possibility of a ‘disaster’ occurring would you go along with it?

The first question you’d ask is how likely is it that a disaster could occur ?

Disaster is defined as losing all your income and/or assets. This disaster may happen at any time over the next 40 years, so assume you’re unable to find work (no-one will employ an aged, long term unemployed person during a recession). Also assume that there are alternative plans available that are guaranteed risk free for life (eg govt bonds).

There’s been discussion elsewhere about backup plans if the original retirement plan fails. Eg Go back to work, or adjust asset allocation, or just don’t be negative. Comment on any backup plans you feel able to implement in case the original one fails in 20 or 30 years time.

For the purposes of the poll assume you DON'T want to have to implement any backup plans.

Is this starting to sound like an exam question?

All depends on your age when you retire really. I plan on retiring well before the age of 40, but I don't expect my investment to stop growing at that point - in fact building the portfolio becomes an even greater focus. Thus, because of the growing portfolio, the longer I have without disaster, the less likely that any single disaster would have a serious impact.

So, by that argument, I would be more vulnerable to disasters occuring in the shorter term, which is true, but they will, by definition, happen sooner rather than later. This means I will have plenty of time to correct the situation and, even at worst, start again. That would suck, but it's not the end of the world. Heck, I'm no where near my prime when it comes to earning power - and yet I've still managed to create a sizable investment portfolio in a little over 6 years. No big deal if I have to do it again - now that I have a better idea about what I'm doing.

> What probability of disaster would you accept in a retirement plan?

keithj said:

If your financial advisor proposed a retirement plan that had a possibility of a ‘disaster’ occurring would you go along with it?

The first question you’d ask is how likely is it that a disaster could occur ?

Disaster is defined as losing all your income and/or assets. This disaster may happen at any time over the next 40 years, so assume you’re unable to find work (no-one will employ an aged, long term unemployed person during a recession). Also assume that there are alternative plans available that are guaranteed risk free for life (eg govt bonds).

There’s been discussion elsewhere about backup plans if the original retirement plan fails. Eg Go back to work, or adjust asset allocation, or just don’t be negative. Comment on any backup plans you feel able to implement in case the original one fails in 20 or 30 years time.

For the purposes of the poll assume you DON'T want to have to implement any backup plans.

Is this starting to sound like an exam question?

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Dear Keithj,

1. I shall attempt to answer your exam question at 2 levels:

a. By human Logic - Yes, I will still consider the plan if there is a 5% risks though I may not neccessarily decide to adopt it subsequently if it does not fully fit into my own unique life circumstances and life goals. to me, there is no such things as a perfect plan in real life saved for "paper" planning exercises. theoretically speaking.

b. Spiritually speaking, I simply live my life by faith in our God, living and enjoying each breath and moments in life, day by day, as God has enabled me to and learning to trust the Lord in every aspects of my own life;- for only it is our GOD ALONE who will know what exactly will happen tommorrow... In this sense, unless our God wills it, all these human retirement planning is all but in vain if the recent earthquake and tsunami disasters, (let alone the present on-gong world-wide fear and safety precautions being adopted against terrorism), seems to be telling all of us.

2. Thank you.

regards,
Kenneth KOH

No Disaster

I agree with Sim, it depends on your age. I am at retirement age so I cannot afford a disaster now.

It was because of this factor that I pulled my superannuation funds from the Govt Super Fund and put it into more property 4 years ago, the fund was going into the negative and I was paying for the priviledge, so I pulled it out and put it into a coastal house that tripled in value, sold that and put it into property elsewhere where it tripled.

You have to take responsibility for your own future

Chris

I suppose I could have voted 1 in 1,000,000, but then again I don't want to be in the same boat as everyone else.

Once I retire I want something completely and utterly bullet proof. I don't want to rely on anyone, certainly not the government or a super fund.

See Change

Because I am new to this a mate of mine who is right into property investing took me along to a seminar that he was a member of the group that were the organisers. The whole seminar was based on living off the equity you have built within your IP's, mind you most of these people had only 1 and 2 IP's, "nothing wrong in that". But this set alarm bells off in my head, cause not what I thought IP's were about.
My plan was to buy as many as possible and with the equity built over time sell some off to fully pay out remaining IP's and thus be all positive and live of the income they produce in my retirement.

am I just to simplistic, dreaming or just a fool!
Regards
John

Brizzy Boy said:

Am I just too simplistic, dreaming or just a fool!

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Nope, that's pretty much my proposed strategy...

You are correct

Thats what we did and are doing - took us 40 years but we made it..we just have to live long enough to enjoy it

Chris

Chrispy,
got to ask this question as my wife has asked me to ask, simply because of the comment lived long enough to enjoy it, "But why 40 years".

Hence I have had many setbacks in life, including a major breakdown to working in excess of over 100 hrs a week for a very very long time, had a heart attack 2yrs ago and am currnetly 45, "So living long enough to enjoy it hits home to me"

Is there something I have to change? "Personally of late I have been thinking that I may not live long enough to enjoy the fruits of my labour" but then again if I start to eat into my equity it may jeopordize the long term comfort of my wife and family after I have gone as far as life insurance is concerned, none as they will not insure me due to past health and particular medication that has been perscribed.

I know this is a tough question, as my wife wants me to enjoy the fruits of my labour but then I feel that I need to provide for the future!

A man that is committed to his family
John

John - Jan Somers' strategy is basically what you described (and what I think Chrispy has followed) - it does work, and is relatively safe - but it can also be relatively slow.

Jan refers to it as a "retirement" strategy - not a "get rich quick" strategy.

This is why many people here look for other, more aggressive strategies, even if they still follow the basics of Jan's strategy (or at least started that way).

There's nothing wrong with any of that - depends on a number of factors such as your current financial and income position, your age, your tolerance for risk, and your general attitudes towards investing.

I'm pretty sure Jan has examples of people closer to retirement (or even post-retirement) who have started investing in property and have done very well for themselves - even if it is just to supplement their retirement income, or build up a nest-egg for the kids/grandkids. I'm trying to remember if her book "Story by Story" had any examples like that ... might have to pull out my copy sometime and go through some of the stories again.

Sim right again

John

Sim is right, we have plugged away at the slow but sure way, we started when we were 19, bought the second one at 23 and so on until now we own 15, we are both 62. We didn't know about Jan then and only discovered her wonderful books in the last couple of years. We thought we were unusual and kept pretty well to ourselves what we were doing but after being tipped off about this forum by a friend, our whole attitude has changed, we now realise we are not alone and not unusual!!

I keep retiring from full time work and getting talked back to "just help out" but this year I am stopping and we will be renovating and refurbishing our properties and loving every minute. We have already fixed up one in Cairns and one in Melbourne, and have started on two of the others in Melbourne, the idea being that we will have better looking properties to attract better tenants and higher rents to live on.

We have to remember that we only get one chance and mine is flying past!!!

Chris

Wow I had a post figured out ... but then I got down to Brizzy Boy's post on life, death and the family. Blew me away ! Bravo John for your willingness to share your life with us, such genuine posts can only help all of us see the REAL picture more clearly.

Brizzy Boy said:

I know this is a tough question, as my wife wants me to enjoy the fruits of my labour but then I feel that I need to provide for the future!
A man that is committed to his family
John

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To John I'd suggest that you are dealing with the uncertainty of death and of the investments' longevity. It's hard enough to handle one only so I can't imagine any answer being truly appropriate. I suspect it's a question for the family as a whole.

Back to the thread's question on UNCERTAINTY I agree with Sim about age or more appropriately put "stage of work / retirement timeline". Additionally I find it difficult to put a % on the likelihood of any disaster since while some can be partly foreseen many are of the type that will blindside you when you least expect it. How can you put a probablility on world financial policies / problems.

Nobody can agree on the soundness of buying IP NOW ... markets picking up, it's flat, there's a softening, a property crash is coming. You can find all these views right here on this forum where the better educated investors reside. So what % probablility of an IP disaster would you assign right now ?Shares have been riding high recently ... so what's the chance of a disaster NOW ? Low I assume but that's an assumption !

The poll uses % ranges of 5 or less ... I don't see how anyone could possibly differentiate. I find it somewhat interesting from an academic viewpoint but feel it has no relavence in reality.

There that should get some responses.

Brizzy Boy said:

Because I am new to this a mate of mine who is right into property investing took me along to a seminar that he was a member of the group that were the organisers. The whole seminar was based on living off the equity you have built within your IP's, mind you most of these people had only 1 and 2 IP's, "nothing wrong in that". But this set alarm bells off in my head, cause not what I thought IP's were about.
My plan was to buy as many as possible and with the equity built over time sell some off to fully pay out remaining IP's and thus be all positive and live of the income they produce in my retirement.

am I just to simplistic, dreaming or just a fool!
Regards
John

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Hi John

Your approach was initially mine too, but I feel that it will take too long and like you said, you want to be able to enjoy thr fruits of your labour.
I'm now thinking that maybe the "Jan Somers way" combined with the living off equity strategy may be the way to go. Still trying to figure out my exact strategy but don't want to get caught just thinking about it and not acting on it.

I've often asked myself what's the very very very worse that could happen and if it did happen how would I cope. As has already been pointed out, if you lost everything, god forbid, you could start again and do it all over again but it more than likely would not take as long because you now know "some secrets". If you wanted to be really pessimistic, and assume you lost everything (for whatever reason), you would retire on a pension (if there is one) and be exactly where you would have been had you not taken a punt on investing in the first place. I realise that sounds morbid, but that's the worse thing that could happen (which I'm sure won't) so what have you got to lose.

Regards
Marty

kissfan said:

I've often asked myself what's the very very very worse that could happen and if it did happen how would I cope. As has already been pointed out, if you lost everything, god forbid, you could start again and do it all over again but it more than likely would not take as long because you now know "some secrets". If you wanted to be really pessimistic, and assume you lost everything (for whatever reason), you would retire on a pension (if there is one) and be exactly where you would have been had you not taken a punt on investing in the first place. I realise that sounds morbid, but that's the worse thing that could happen (which I'm sure won't) so what have you got to lose.

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I like what you've said here.

I think it is important for anyone even contemplating any type of investing, to analyse and rationalise the worst case scenario. Why? Because many seem to, by the way many of us have been raised/lived in life, look at the worst case scenario and making a decision based on that, rather than the potential, (and likely), successes of taking action.

Hi all did not realise that my post would stir so many replies,
I do often ask myself what if?
I take heart today as I know what I have achieved in the last 15 months will make a diffrence.

15 months ago if the worst happened to me, my wife would probably have had to sell our home. Today the same question brings on a different answer, family home payed off plus 1 IP just short of being payed off after selling the other 2 IP's. Asking the "what if the worst" question to myself daily re affirms that the direction that I am driving my family is the correct for us.

You all give me so much inspiration, that is why I visit this forum daily.
Many Many Kind Regards
John

Frankly,

I'm not certain that property will be in my final retirement portfolio - it requires too much work.

Also given the worse case of risk - losing everything doesn't scare me, hence I am happy to accept more than 5% risk.

(BTW retirement being retirement from 24hr parenting - 'work' retirement is more subjective as I get bored fast & so expect to work on and off until I either die or an immortality treatment is invented. The idea of retiring absolutely to me seems a bit too boring. You can only lay on so many beaches......)

Cheers,

Aceyducey

kissfan said:

As has already been pointed out, if you lost everything, god forbid, you could start again and do it all over again but it more than likely would not take as long because you now know "some secrets".

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I have a friend who had his first million in real estate at age 24. But in working towards that, his wife divorced him. In the settlement, he gave her everything- because he knew how to get it back.

He made that back and very much more- at age 40, he's very comfortably retired, and enjoying the fruits immensely.

Aceyducey said:

You can only lay on so many beaches......)

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Love that one Acey !
I've come to enjoy laying on beaches lately, but only for a few weeks a year.

Your point is well made. We shouldn't let fear rule our lives and planning, sensible risk management and fear or all potentials are two very different approaches.

Aceyducey said:

Also given the worse case of risk - losing everything doesn't scare me, hence I am happy to accept more than 5% risk.

(BTW retirement being retirement from 24hr parenting - 'work' retirement is more subjective as I get bored fast & so expect to work on and off until I either die or an immortality treatment is invented. The idea of retiring absolutely to me seems a bit too boring. You can only lay on so many beaches......)

Cheers,

Aceyducey

Click to expand...

Pretty much with you there on that one Acey. My original plan has changed significantly over the last 12 months or so, due to a major shift in my personal life. Basically, I've moved from wanting a large passive income (and willing to work x number of years to achieve it) to concentrating on getting to a certain point (ie: much smaller passive income) at which point I can leave employment behind and concentrate on certain projects I would like to immerse (spelling?) myself in.
The point at where I realised that this strategy was the right one for me was when I was talking to a friend about investing/retiring on a passive income and we were discussing what we would do afterwards. She mentioned to me that she would take a few months off, but do things in the community afterwards. Her words were pretty much the same as yours Acey - 'It's nice to sit on the beach, but you can't do it forever.'

Mark Laszczuk said:

Basically, I've moved from wanting a large passive income (and willing to work x number of years to achieve it) to concentrating on getting to a certain point (ie: much smaller passive income) at which point I can leave employment behind and concentrate on certain projects I would like to immerse myself in.

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I agree 100%. Retirement for me has 2 phases -

phase 1 - have enough passive income to retire on a low risk, reliable and comfortable base income, retain growth assets to leverage against (inc PPOR) and continue to invest full or part time.

phase 2 - when I don't feel like (or enjoy) investing any more (maybe next month, maybe in 30 yrs) I can stop, and sail around the world, in full knowledge that I have enough assets & income to guarantee a substantial income.

The other point is that NOT having a job makes it a lot easier to invest full time. For me phase 1 retirement has always been a top priority - time is the most valuable thing we have.