How much do I need in Retirement

[MTR]

HI All

My former accountant who was managing our SMSF sent this flyer. I know most here would expect to retire on much more and earlier, my guess is most that do not invest in property/shares will retire on much less than this.

This is their suggested guide/model

Financial Goal
By age 30, we need to have 1.1 times targeted retirement income
by age 35, we need to have 2.51 times targeted retirement income
by age 40, we need to have 4.31 times targeted retirement income
by age 45, we need to have 6.62 times targeted retirement income
by age 50, we need to have 10.57 times targeted retirement income
by age 55, we need to have 15.63 times targeted retirement income
by age 60, we need to have 22 times targeted retirement income


The following shows this, target person/couple on income of $50,000 a year for retirement


Age Wealth Target $ retire on $50,000pa
25 -
30 $55,000
35 $125,000
40 $215,500
45 $331,000
50 $528,500
55 $781,500
60 $1,100,000



MTR

 

[Willowtree]

What's it invested in when they retire and how then do they draw it down?

Do we assume 50k per year or 25 years and then they you die?

 

[MTR]

What's it invested in when they retire and how then do they draw it down?

Do we assume 50k per year or 25 years and then they you die?

This is just a model, perhaps what they think is a suitable benchmark for their clients, they do not provide information on specific investments, though they mention 6% pa is feasible.

 

[Aaron_C]

Generating net returns of $200,000 pa would be the goal. Whether that is $1m or $20m doesn't matter.

 

[sash]

If you plan to retire at 55....and your are drawing down 0.35-0.4% of capital every month (4-5% per annum) and you want the capital to last 30 plus years then 20-4 times your income is about right. The earlier you retire you need to add another another multiplier of 0.5.

As a rule of thumb...if you retired at 30 you would need about 40 times your income target. So at 55 you would need $1-1.2m for 50k in income per annum and at about 1.6m to 1.7m if you retired at 30 years of age to get 50k indexed to inflation for the rest of your life.

My plan is $120k net (after taxes) and I have worked out you need a capital of about $2.65m net if I plan to reture at 55.

HI All

My former accountant who was managing our SMSF sent this flyer. I know most here would expect to retire on much more and earlier, my guess is most that do not invest in property/shares will retire on much less than this.

This is their suggested guide/model

Financial Goal
By age 30, we need to have 1.1 times targeted retirement income
by age 35, we need to have 2.51 times targeted retirement income
by age 40, we need to have 4.31 times targeted retirement income
by age 45, we need to have 6.62 times targeted retirement income
by age 50, we need to have 10.57 times targeted retirement income
by age 55, we need to have 15.63 times targeted retirement income
by age 60, we need to have 22 times targeted retirement income


The following shows this, target person/couple on income of $50,000 a year for retirement


Age Wealth Target $ retire on $50,000pa
25 -
30 $55,000
35 $125,000
40 $215,500
45 $331,000
50 $528,500
55 $781,500
60 $1,100,000



MTR

 

[MTR]

If you plan to retire at 55....and your are drawing down 0.35-0.4% of capital every month (4-5% per annum) and you want the capital to last 30 plus years then 20-4 times your income is about right. The earlier you retire you need to add another another multiplier of 0.5.

As a rule of thumb...if you retired at 30 you would need about 40 times your income target. So at 55 you would need $1-1.2m for 50k in income per annum and at about 1.6m to 1.7m if you retired at 30 years of age to get 50k indexed to inflation for the rest of your life.

My plan is $120k net (after taxes) and I have worked out you need a capital of about $2.65m net if I plan to reture at 55.

Thanks for the numbers, very interesting

 

[VYBerlinaV8]

These models are interesting, but don't always make sense to me.

If I have built a portfolio which, in the longer term, has generated an average yield of 5%, with some growth as well. I figure that, in the longer term, I'll spend just under the total yield (allowing a cash buffer to build over the years, plus investing in some other assets).

I've always thought taking out 4% or less, so your money doesn't 'run out', is probably far too conservative for real world results.

 

[HiEquity]

I don't like the models either - whether you retire at 30 or 50 you could live for another fifty years, which is effectively "indefinite" from a capital spend point of view - I don't see any real difference there - you need to have enough passive income to live and put something away for tomorrow at the same time for safety. Most of the models ignore leverage as well, which doesn't help at all.

There are just too many variables when you're leveraged into property and don't want to sell because of the transaction costs / CGT and desire to build long term inflation resistant wealth for the security of the whole family (eg elderly parents who may need future help with care, anything could happen to the kids etc etc). It all depends on what you consider to be your responsibilities and how risk averse you are regarding income, as well as what lifestyle you desire in retirement of course. You could volunteer to drill water bores in Africa with next to no living expenses or jet around the world staying in five start hotels - big difference between the two as we all know.

To take a hypothetical example, with a circa $5m portfolio leveraged at 60% at current interest rates (5%) and enjoying a 5% net yield overall.

Interest = $150k ($3m debt at 5%)
Rent = $250k
Therefore income = $100k

Looks to be a pretty safe and enviable position, particularly if you think you will only spend $50k per year in retirement? Live life well and keep paying down debt to build your safety levels giving you a good buffer. But it wasn't that long ago that interest rates were 8%, in which case the situation looks like:

Interest = $240k
Rent = $250k
Therefore income = $10k.

With $50k of living expenses you're in the hole by $40k per year and the size of the hole keeps growing bigger with every passing year. Of course there is nothing to stop you finding some active income in case this happens but that wasn't the idea was it? Especially if you've given up a much higher paid career track in the meantime which may be difficult to recover.

Yet this is a financial position that so many people would drool over! With variables like this, the task of deciding how much is enough is very difficult for a leveraged property investor. Which explains why so many keep working far longer than they probably need to in order to attain a greater level of "safety". When you've picked your poison you have to put up with the side effects, which include a greater level of difficulty in answering this very question.

 

[MTR]

I don't like the models either - whether you retire at 30 or 50 you could live for another fifty years, which is effectively "indefinite" from a capital spend point of view - I don't see any real difference there - you need to have enough passive income to live and put something away for tomorrow at the same time for safety. Most of the models ignore leverage as well, which doesn't help at all.

There are just too many variables when you're leveraged into property and don't want to sell because of the transaction costs / CGT and desire to build long term inflation resistant wealth for the security of the whole family (eg elderly parents who may need future help with care, anything could happen to the kids etc etc). It all depends on what you consider to be your responsibilities and how risk averse you are regarding income, as well as what lifestyle you desire in retirement of course. You could volunteer to drill water bores in Africa with next to no living expenses or jet around the world staying in five start hotels - big difference between the two as we all know.

To take a hypothetical example, with a circa $5m portfolio leveraged at 60% at current interest rates (5%) and enjoying a 5% net yield overall.

Interest = $150k ($3m debt at 5%)
Rent = $250k
Therefore income = $100k

Looks to be a pretty safe and enviable position, particularly if you think you will only spend $50k per year in retirement? Live life well and keep paying down debt to build your safety levels giving you a good buffer. But it wasn't that long ago that interest rates were 8%, in which case the situation looks like:

Interest = $240k
Rent = $250k
Therefore income = $10k.

With $50k of living expenses you're in the hole by $40k per year and the size of the hole keeps growing bigger with every passing year. Of course there is nothing to stop you finding some active income in case this happens but that wasn't the idea was it? Especially if you've given up a much higher paid career track in the meantime which may be difficult to recover.

Yet this is a financial position that so many people would drool over! With variables like this, the task of deciding how much is enough is very difficult for a leveraged property investor. Which explains why so many keep working far longer than they probably need to in order to attain a greater level of "safety". When you've picked your poison you have to put up with the side effects, which include a greater level of difficulty in answering this very question.

Excellent points.

"How much is enough", seems to me property investors or investors in general keep raising the bar, I know I do.

I now also consider how I can help my children, provide a deposit for home etc.

I think perhaps the best way to help your children is teach them the skills so they can replicate what you do as an investor.

 

[OKFFW]

"How much is enough", seems to me property investors or investors in general keep raising the bar, I know I do.

My wife and I recently went to a intro seminar thingy at which some PD speaker gave a spiel. I remember exactly the moment I switched off.....

"Remember, it doesn't matter what level you are at now, you may think you are doing fantastic, you might have the nice house, the fancy car, the boat and the holiday every year, but there is always higher level you can move towards."

A life where I'm never satifisfied and only "think" I'm doing well and am always striving to get more shiny baubles to distract me for a few brief moments before I'm desiring the next shiny bauble doesn't sound like a life I'd be happy with.

 

[MTR]

My wife and I recently went to a intro seminar thingy at which some PD speaker gave a spiel. I remember exactly the moment I switched off.....

"Remember, it doesn't matter what level you are at now, you may think you are doing fantastic, you might have the nice house, the fancy car, the boat and the holiday every year, but there is always higher level you can move towards."

A life where I'm never satifisfied and only "think" I'm doing well and am always striving to get more shiny baubles to distract me for a few brief moments before I'm desiring the next shiny bauble doesn't sound like a life I'd be happy with.

So true, balance in life with everything I guess is important, smell the roses along the way

 

[wilkie0611]

I think perhaps the best way to help your children is teach them the skills so they can replicate what you do as an investor.

i believe this point is the crucial one... i mean i cant really talk as im only 25 and starting my investing career but yes i will be teaching my little boy everything i know and have learnt when he is a good age... i havent had anybody parents or inlaws even consider investing but if they had this would have put me miles ahead of the crowd...

 

[VYBerlinaV8]

Looks to be a pretty safe and enviable position, particularly if you think you will only spend $50k per year in retirement? Live life well and keep paying down debt to build your safety levels giving you a good buffer. But it wasn't that long ago that interest rates were 8%, in which case the situation looks like:

Interest = $240k
Rent = $250k
Therefore income = $10k.

One the things to remember, I think, is that if you are only spending yield and not growth (ie LOR not LOE), then over time the actual amount of the yield should be increasing.

If your properties average, say 5% growth per year, then after 15 years your income will have doubled, assuming yield remains at 5%. In addition, your LVR will have dropped significantly, thus reducing the impact on interest rate changes.

Of course, we all know that rents and capital values don't increase linearly, which is why you need some contingency (buffer). One way to do this is to work part time or occasionally, to spend perhaps 80% of your yield-based income, and to use some of your extra cash to reduce your outstanding loans.

I'm happy to retire LOR when my PPOR is paid off, but I will be implementing a plan to reduce my total debt to zero, over maybe a 25 year period. Conservative, yes, but I'll be older and won't be able to accept the same level of risk. Of course, if I can have $5-7M of invested assets generating 5% yield, increasing by 1-2% per year over and above inflation (on average), that will be a perfectly acceptable end state as far as I am concerned.

 

[Zorrohd]

Excellent points.

I think perhaps the best way to help your children is teach them the skills so they can replicate what you do as an investor.

IMHO I agree completely. I would rather involve my son in what we are doing and encourage him to do the same than just 'give' him the fruits of my labour. I know it's a bit off the original thread, but my partner and I recently went looking for property in Melbourne, and took my 22yo son (who lives and works down there) around some properties, cos he's pretty much the demographic we would be targeting as tenants. And his insights helped to put some properties into sharp focus, and remove others from contention.

As to how much is enough? We are starting with replicating our current income (just over $100k net) , and will go from there. What our mix of properties ends up looking like remains to be seen.

PS - loving being part of this forum - very informative and entertaining.

 

[see_change]

We're planing on paying down some debt when we down size from our current PPOR. I want to get to the point where we sell down property to pay of the remaining ones and live on the rent from those.

How much you need is purely a personal decision in terms of the lifestyle you want.

In order to be a successful investor you have to divert funds into investing that you could have spent on other things , but for me investing is a bit pointless if there isn't a reward at some stage.

I dont want that reward to be a " fairly basic retirement " which is what all the financial planners seem to aim for . All that means is that I'm paying for my retirement rather than the government .

Cliff

 

[kathryn d]

So true, balance in life with everything I guess is important, smell the roses along the way

It's funny people say that, but do they believe that?

My MIL loves to travel.(she's 70)
There are lots of tours she can take, but many times she hops on the local buses of the country she is visiting, and just travels around, hopping off when something catches her eye.
She loves the buildings & people watching. Eating at markets/delis where the locals go.

It seems a lot of property investors keep working. Is that because their rentals can't fund their retirement, at least to the level they expect it to be?

Is it so important to continue working so you never need to budget?
How much stress, or time restraints, is caused by working? A lot, I would say.

For the people who want to be able to eat out as often as they want, they really should do that for a month.
It doesn't take long for you to want a homecooked meal.
Or sleeping in a motel while on vacation...to want to go home and just do nothing and relax. Grab a book, magazine or crossword puzzle.(I'm just starting to do suduko puzzles)

 

[china]

For the people who want to be able to eat out as often as they want, they really should do that for a month.
It doesn't take long for you to want a homecooked meal.
Or sleeping in a motel while on vacation...to want to go home and just do nothing and relax. Grab a book, magazine or crossword puzzle.(I'm just starting to do suduko puzzles)

Yes I agree with this sentiment. I tend to eat out half the week and eat in the other half. And I am not a fan of travelling - I find hotels, airplanes, airports, customs, foreign currency exchanges, transport, walking around strange places far too stressful.

 

[VYBerlinaV8]

It seems a lot of property investors keep working. Is that because their rentals can't fund their retirement, at least to the level they expect it to be?

I'll have a crack at this one.

For me, I have set a very high expectation of what I believe my 'retirement' will be like. If I wanted to live on $40k per year, I could retire today. But I don't want to. I want to retire on $150k per year (in 2005 dollar terms). I then want to support myself in old age, and still be able to do what I want, health permitting. When I finally go, I want my wife (if she outlives me) to be well looked after, and I want my children to receive inheritences that will will significantly enhace (what I hope will be) their already happy lives.

I'm planning on spending perhaps 30 years doing lots of travel to interesting places, driving fairly new cars, living in my nice PPOR and generally having fun.

This is just me, and I don't expect others to want what I want.

 

[Aaron_C]

It seems a lot of property investors keep working. Is that because their rentals can't fund their retirement, at least to the level they expect it to be?

I work because I get bored and restless very easily. If I just traveled all the time - sure, I would have a lot of fun initially, but I would lose purpose and direction just as quickly and want to get back into it.

 

[kathryn d]

I work because I get bored and restless very easily. If I just traveled all the time - sure, I would have a lot of fun initially, but I would lose purpose and direction just as quickly and want to get back into it.

You work for yourself though..right?

I think when you run your own business, you enjoy the interaction, and "stuff" that goes along with it.

I look forward to being hands on, when we return to canada every summer.

I don't have conventional hobbies..because I enjoy this (most times)