What the wealthy won't tell you. SMH article

[geoffw]

I did some calculations last week which I posted in the financial freedom without debt thread.

If you started saving $8500 per year thirty years ago, rising inline with inflation to around $20,000 today, and in an investment returning 6% to 7% per annum then you'd have about a million dollars.

Rolling it forward, if you want the equivalent of $1 million in 2042 (which will be around $2.5 million assuming inflation remains where it is) then you'd need to save $20,000 per annum, rising with inflation. For China's $2 million target, that increases to $40,000, and GeoffW's $4 million requires $80,000.

Looking at the numbers, it strikes me that saving a decent nest egg is a substantial, long-term commitment. It's possible, but it could be painful.

Spiderman's $4m actually.

30 years ago $8,500 would have been more than half of my pay (from memory). As it was I wasn't saving anything. I was too busy having a good time. No assets to speak of. Well, books and music (vinyl). So nothing of lasting monetary value. Renting. Saving money was not going to do it for me.

It's only when I found out about property investing (thanks to Peter Spann) that I found there was a way I could provide for that time when my working career finished.

Saving was not enough. Leverage was needed.

 

[mattnz]

If you have the financial sense to be able to save $2 million, you should also be able to safely earn more than 5% on your savings. In fact, I would be amazed if anyone who got to $2 million did it at all by putting their money on term deposit.

 

[Dazz]

For someone attempting to get wealthy, that article from the SMH is akin to a serious athlete eating a big bag of fairy-floss.

There's nothing there of any substance to really sustain you.

Motherhood statements don't cut the mustard in the real world.

 

[Graemsay]

Saving was not enough. Leverage was needed.

I agree. But I'd argue that considering leverage purely in terms of bank loans is perhaps too narrow. Think of it as using other peoples resources: Selling software through an app store; investment capital; mass-market publishing; or even mass production.

 

[china]

I agree. But I'd argue that considering leverage purely in terms of bank loans is perhaps too narrow. Think of it as using other peoples resources: Selling software through an app store; investment capital; mass-market publishing; or even mass production.

Instead of constantly putting the 20k per year into a bank deposit over twenty years, you kept buying commonwealth bank shares without leverage? Would this be a safer way to speed up the desired 2 mil with less risk?

 

[redwing]

Only temporarily, if you want $110k/year income in 2012 dollars and wish to spend it all each year.

Needs to be nearer $4m if you want to spend it all and compensate for inflation so the amount remains the same relative to average incomes indefinitely (ie double the average).

Assuming interest of 5.5% and inflation of 3% then you could only withdraw 2.5% of your capital each year if you wanted to preserve the real value of your capital.

Counting tax and using a wage inflation figure (instead of CPI) would make the numbers worse.

I had read that we shouldn't be withdrawing more than 4% of any retirement portfolio if we wanted the money to last, this was all based on historical evidence studies including bull and bear markets and retiring during either one

If you only need $30 k p/a from your retirement portfolio, you'll need 25 x that amount ($750k) 4% of $750k is $30k p/a

I did some calculations last week which I posted in the financial freedom without debt thread.

If you started saving $8500 per year thirty years ago, rising inline with inflation to around $20,000 today, and in an investment returning 6% to 7% per annum then you'd have about a million dollars.

Rolling it forward, if you want the equivalent of $1 million in 2042 (which will be around $2.5 million assuming inflation remains where it is) then you'd need to save $20,000 per annum, rising with inflation. For China's $2 million target, that increases to $40,000, and GeoffW's $4 million requires $80,000.

Looking at the numbers, it strikes me that saving a decent nest egg is a substantial, long-term commitment. It's possible, but it could be painful.

As with Geoff $8,500.00 thirty years ago would have been a big ask, so we're playing catch up with leverage and additional funds

Its like Noel Whittakers Story of the Magic Train, get on board early enough and the tickets cheap and you're in for a reasonably comfortable ride, the later you get on board the Train, more the ticket will cost

Start Planning earlier?