Author Topic: Looking for Aussie FIRE-ees  (Read 2509 times)

Freshwater

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Looking for Aussie FIRE-ees
« on: March 04, 2017, 10:52:46 PM »
Are you FIRE in Australia?

I am keen to find anyone that has retired a good few years out from being able to draw on super (younger than 50 maybe), and from where you are collecting your income. Is there anyone out there who has retired early and is actually using a 4% withdrawal rate?

Hubby and I had a plan, not so long ago, to FIRE predominantly with property income. Due to the crazy property market here we have decided to cash in an IP and diversify our income more - if we adopt the 4% rule we'd be looking at an income split something like: 50% property, 40% index funds, 10% P2P.

Giving all the $$$ into one business to manage seems inherently risky once we are actually trying to live off it. For this reason, we'll probably use 2 x P2Ps, but what about the index funds? They can get locked during bad times, so we are wondering if people spread across more than one business e.g. Vanguard and BT once they reach retirement?

We are looking at RE in early to mid 2018.


steveo

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Re: Looking for Aussie FIRE-ees
« Reply #1 on: March 05, 2017, 12:14:46 AM »
I'm not FIRE yet but I am basically only using Vanguard index funds. I also have some direct shares from the company that I work for. I intend to FIRE on a WR of about 5% including Super. If I don't make it to 60 prior to running out of money outside Super we intend to sell our house and downsize/relocate.

Freshwater

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Re: Looking for Aussie FIRE-ees
« Reply #2 on: March 05, 2017, 01:11:32 AM »
I'm not FIRE yet but I am basically only using Vanguard index funds. I also have some direct shares from the company that I work for. I intend to FIRE on a WR of about 5% including Super. If I don't make it to 60 prior to running out of money outside Super we intend to sell our house and downsize/relocate.

Yes good point, we will always have the sell PPOR option as well. I can't see us wanting to maintain it in old age anyway. We would be unlikely to be able to pick up our old jobs after many years out so this will be the big fall back.

Did you pick the 5% WR to reflect Aussie conditions / have you mainly invested in the AU based funds?

Itchyfeet

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Re: Looking for Aussie FIRE-ees
« Reply #3 on: March 05, 2017, 01:56:41 AM »
Just posted this on the investing thread

We will FIRE in 2019, so not there quite yet, but close.

I will be 47 and DW 41

We will have quite a lot outside super. Probably more than normal due to being able to accumulate funds tax free outside super - PPOR in Sydney + savings on tax free income earned in Middle East.

At FIRE our NW will be split something like:

Super Accum 17% (accessible from 60)
Super Def Benefit pension 8% (accessible from 55)
Investment Property (Bris) 0-20%
Stocks (primarily indexed funds) 30-50%
PPOR 25%

We haven't decided what to do with our Brisbane investment property yet. Might keep it leveraged. Not sure.

DW wants to work part time Post Fire. This might give us an opportunity to put some more in super, depending on what she earns. At a minimum there will be the SGL.


We have planned our stash based on a 4% WR. This of course excludes the PPOR (i.e: 4% of 75% of our NW at FIRE.




steveo

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Re: Looking for Aussie FIRE-ees
« Reply #4 on: March 05, 2017, 04:57:09 AM »
I'm not FIRE yet but I am basically only using Vanguard index funds. I also have some direct shares from the company that I work for. I intend to FIRE on a WR of about 5% including Super. If I don't make it to 60 prior to running out of money outside Super we intend to sell our house and downsize/relocate.

Yes good point, we will always have the sell PPOR option as well. I can't see us wanting to maintain it in old age anyway. We would be unlikely to be able to pick up our old jobs after many years out so this will be the big fall back.

Did you pick the 5% WR to reflect Aussie conditions / have you mainly invested in the AU based funds?

My super is in the high growth option that I have which is basically split evenly between world and aussie funds. I have 50% aussie, 25% & 25% bonds outside super. I've heard that australia has a lower requirement for SWR but I am not going to worry about that. In my opinion the SWR is a guide.

bigchrisb

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Re: Looking for Aussie FIRE-ees
« Reply #5 on: March 05, 2017, 03:02:23 PM »
I'm FI but not RE, at 35.  Net assets about $2.75m, asset allocation:
PPOR: 32%
Direct AU shares: 25%
AU REITS: 8%
AU ETF/LICs: 16%
International shares: 15%
Direct property: 2%
Bonds (floating rate notes): 2%

Of this, my non-super, non PPOR stash is approx $1.26m, which is enough to cover my costs at 4%. 

If I thought my past lifestyle was representative of the rest of my life, I'd pull the pin, with the view that I can probably live off 4% for the 25 years until super, and tap into home equity if things are getting tight (I have a fully offset mortgage against the PPOR, interest only for another 7 years, then paid down over the next 20).

However, I've just gotten married, and we do intend to have children.  I don't have a lot of confidence about how that is going to look expenses wise, so some uncertainty there.  I've also got a health condition that means that a return to work in late life is unlikely to be realistic, and unknown (and probably escalating) future care costs.  Because of the uncertainty of these two, I haven't yet pulled the trigger for RE.

My wife (we keep separate finances, so there are some additional layers of resilience there) isn't done with her career yet.  As such, I suspect we are likely to transition to a single income family interlaced with sabbaticals, rather than outright FIRE.  We are kicking this off with three years overseas late this year for her work. I'm intending to use this three years as a trial RE.  Test out the draw down and see how things feel from my side.  She will we earning a decent income over this time, so I suspect any stress in a crisis would be significantly muted compared to the full version.

I'm pretty keen to hear from others how they go / have gone, and how their strategies have worked out.  Now that I've got a portfolio outside super that is close enough to getting me through to preservation age, I'm more focused on providing a bit more liquidity (paying down margin debt) that can be tapped easily in the next few years, and topping up my super balance.

What are others doing in the first few years of draw-down, or in the last couple of years approaching RE?

mjr

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Re: Looking for Aussie FIRE-ees
« Reply #6 on: March 05, 2017, 03:39:18 PM »
At 51, I have $1m in my smsf and $800k in taxable accounts.  AA is about 60% ETFs (VAS and VTS) with 40% in cash/term deposits which I'd rather have in ETFs but the high valuations scare the willies out of me.

I'm obviously FI now, the taxable ETFs generate about $15k in dividends. This plus the cash would carry me comfortably through to 60.

That said, my RE target is $2m investable assets which I'll hit in about 12 months.  I'd expect to have increased my ETF allocation to about 75% on both taxable and super by that time.

MsRichLife

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Re: Looking for Aussie FIRE-ees
« Reply #7 on: March 05, 2017, 11:09:38 PM »
I'm Aussie and FIREd in October last year, aged 39. DH is 37 and we have a 4 year old son.

We have a networth of about $1.7M outside of super. Of that:

PPOR: ~27%
Investment Properties: ~47%
'Stache (Golden Butterfly Portfolio): ~ 26%

We had enough income from this portfolio for a frugal FIRE.

We also had a rather significant amount in Super. Due to medical issues we have successfully claimed against super for total permanent disability which means we have access to a significant percentage of our Super now, rather than waiting 15-20 years for it.

Freshwater

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Re: Looking for Aussie FIRE-ees
« Reply #8 on: March 06, 2017, 05:49:57 PM »
Thanks for the responses. I'm going to do some reading up on asset allocation and consider if we need to leave more in term deposits. The current plan would see one years expenses (only 2% of our NW) in cash term deposits. But if I have much more than that, we won't have enough income.

One of my thoughts: if we use 4% WR, that's based on 7% average returns less 3% inflation, right? But if 40% of our stache is in cash/term deposits, that won't grow at a rate of 7% on average, so... how can we withdraw 4%?

Sorry if this is a basic question, up until now I have been intending to live on mainly rental income so it hasn't been important for me to understand the detail. Maybe I should go back to the 'Basic Maths' MMM posts and start my education again!

Does anyone have a response to the question about having the bulk of your money invested by one business - do you consider that a risk or does it not bother you? DH is not keen to put everything in Vanguard. I think we'll have 80% of our net worth including our PPOR outside of it so I'm fine.
 

Ozstache

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Re: Looking for Aussie FIRE-ees
« Reply #9 on: March 06, 2017, 07:22:42 PM »
One of my thoughts: if we use 4% WR, that's based on 7% average returns less 3% inflation, right? But if 40% of our stache is in cash/term deposits, that won't grow at a rate of 7% on average, so... how can we withdraw 4%?

My thinking on this is that as long as your overall portfolio pulls in 4% above inflation average return then you are good to go ie. the rest of your investments need to take up the slack in what the cash/term deposits aren't returning.

BTW, I FIREd at 45 but my situation is not really comparable with most as the bulk of my retirement expenses are met by a defined benefits pension I receive. My wife, who currently works casual hours bringing in a small income, is about to join me in retirement soon. Her income will be replaced in part with Vanguard VAS dividends we have otherwise been reinvesting until now and some interest from bank accounts that will now be tax free thanks to her income falling below the tax free threshold.

The rest of our stash is in super, which we can't touch for another 8 years at least for my wife (11 for me) but that doesn't matter as we have excess income based on current spending habits, even with my wife no longer working, hence our safety net continues to grow. If a major unforeseen expense comes up, we will just draw down on bank account balances. Once we hit preservation age, it's all gravy.

Itchyfeet

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Re: Looking for Aussie FIRE-ees
« Reply #10 on: March 06, 2017, 07:35:28 PM »
Thanks for the responses. I'm going to do some reading up on asset allocation and consider if we need to leave more in term deposits. The current plan would see one years expenses (only 2% of our NW) in cash term deposits. But if I have much more than that, we won't have enough income.

One of my thoughts: if we use 4% WR, that's based on 7% average returns less 3% inflation, right? But if 40% of our stache is in cash/term deposits, that won't grow at a rate of 7% on average, so... how can we withdraw 4%?

Sorry if this is a basic question, up until now I have been intending to live on mainly rental income so it hasn't been important for me to understand the detail. Maybe I should go back to the 'Basic Maths' MMM posts and start my education again!

Does anyone have a response to the question about having the bulk of your money invested by one business - do you consider that a risk or does it not bother you? DH is not keen to put everything in Vanguard. I think we'll have 80% of our net worth including our PPOR outside of it so I'm fine.

You need to remember that the 4% rule implies that you will not run out of cash over a 30 year period. I.e.: in the worst case scenarios your initial capital is fully consumed. You are not only spending returns, but principal as well.

If you did a simple annuity calculation, the 4% rule only requires an average return above inflation of only around 1.6%. Of course nothing is simple and the timing of the returns, negative returns and inflation are all important.

 If you need the portfolio to last 40 years, then the simple annuity would show that your average returns need to be about 1% higher. However, again it has to be stressed that movements of financial markets are anything but a simple annuity.

In summary, if you wanted to have near 100% confidence that you would never draw down on the initial stash, and would grow it with inflation, and you were strictly applying the inflexible assumptions that the 4% rule was based on, then you need to draw less than 4%....... or, as many mustachiams adviocate, you just need to bend the 4% rule a little with variable draw downs etc and approach the future with some optimism.

You must keep in mind that the 4% rule is what would be required to survive the worst returns in history in the US (not even Australia). Do you really feel this unlucky?...... or so inflexible that you can't vary your spending/ earn a little income if things go bad?

FIREing requires a leap of faith, based on probabilities.
« Last Edit: March 06, 2017, 07:38:09 PM by Itchyfeet »

LadyFIRE

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Re: Looking for Aussie FIRE-ees
« Reply #11 on: March 06, 2017, 10:17:01 PM »
The biggest concern I have about the 4% is that yes it's targeted at surviving the worst historical circumstances, but the study only ranged over 30 years, and many of us are pushing for FIRE for much longer.

I'm aiming for a 4% WR of $50k ($1.25Mil portfolio) but in my pre-FIRE life I'm trying to live on $40k. Hopefully this will make my FIRE more resilient and allow me to stretch and enjoy myself once I pull the pin. In 10+ years... so far away
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Dropbear

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Re: Looking for Aussie FIRE-ees
« Reply #12 on: March 07, 2017, 02:11:59 AM »
I've heard that australia has a lower requirement for SWR but I am not going to worry about that. In my opinion the SWR is a guide.

Can I ask, please, what are the Australian-specific conditions that influence a safe withdrawal rate here relative to elsewhere?  Even though it's a guide, I'd be happy to know more about any local context considerations for it?

(My FIRE calculations use the 4% rule also, although it'll take some years of compounding for me yet.)

steveo

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Re: Looking for Aussie FIRE-ees
« Reply #13 on: March 07, 2017, 02:36:24 AM »
I've heard that australia has a lower requirement for SWR but I am not going to worry about that. In my opinion the SWR is a guide.

Can I ask, please, what are the Australian-specific conditions that influence a safe withdrawal rate here relative to elsewhere?  Even though it's a guide, I'd be happy to know more about any local context considerations for it?

(My FIRE calculations use the 4% rule also, although it'll take some years of compounding for me yet.)

Honestly I don't know. I assume the real stock market returns haven't been as good as in America.

marty998

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Re: Looking for Aussie FIRE-ees
« Reply #14 on: March 07, 2017, 02:54:18 AM »
I've heard that australia has a lower requirement for SWR but I am not going to worry about that. In my opinion the SWR is a guide.

Can I ask, please, what are the Australian-specific conditions that influence a safe withdrawal rate here relative to elsewhere?  Even though it's a guide, I'd be happy to know more about any local context considerations for it?

(My FIRE calculations use the 4% rule also, although it'll take some years of compounding for me yet.)

Honestly I don't know. I assume the real stock market returns haven't been as good as in America.

Tax treatment of dividends / franking credits provides an income boost here that you don't get in America.

It's not something that can be quantified easily given the vagaries of marginal tax rates and the variable nature of dividends.

Itchyfeet

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Re: Looking for Aussie FIRE-ees
« Reply #15 on: March 07, 2017, 11:04:11 AM »
The biggest concern I have about the 4% is that yes it's targeted at surviving the worst historical circumstances, but the study only ranged over 30 years, and many of us are pushing for FIRE for much longer.

I'm aiming for a 4% WR of $50k ($1.25Mil portfolio) but in my pre-FIRE life I'm trying to live on $40k. Hopefully this will make my FIRE more resilient and allow me to stretch and enjoy myself once I pull the pin. In 10+ years... so far away

Lots can change in 10 years..... but if you are spending only $40K on $1.25M, that's a WR of 3.2%. That should be pretty safe, at least based on history.

But just going back to the 4% rule for a moment.....

Just say that you found yourself retiring in one of the worst times in history. You don't say how old you will be when you FIRE, but for the sake of discussion let's assume you will be 45.

In this imaginary dire financial world if you kept spending 4% plus inflation you would be broke at 75, but you find yourself living to 90.... oh no!!

But is this really realistic..... or is the following more realistic....

You go along spending your 4% for 25 years, and then one day you look at your stash and wake up to the fact that it is shrinking fast.

You give yourself a face punch for not looking at your bank balance for the past 10 years, but now you have looked you decide to take action.

Remember, for your stash to run out at 30 years, at 25 years you would still have close to 5x annual expenditure remaining  in your stash.

So you find yourself at 70 with a stash that is only 5 times your spending, or in your example $200K.

At this point, as you are 70 you decide that the most you should draw down is 6% of your stash, or $12,000, from that point on rather than $40k.

Now the good thing is that you are 70, so you will also get the govt pension of $20K per year (assuming you are single and own your own home).....

So everything has gone absolutely pear shaped, and you have suffered pretty much the worst economic sequence of returns in history, and your retirement has ended up being $40k per Year for 25 years, and then $32K per year thereafter until you kick the bucket. This should be manageable.

Sure you won't be living a fancy pants lifestyle, but the AFSA modest retirement budget for a single is $24K. Your $32K per year would give you an extra $8K per year to add quite a few luxuries to your modest retirement.

The moral of the story is that even if you have only a small amount left in your stash at pension age, it will make a huge difference to your autumn years so don't worry about the 4% rule.

FIRE and enjoy life. Take stock again 10 years from now amd stop worrying. She'll be right mate.

Of course, as you are planning on spending only 3.2%, it's extremely improbable you'd find yourself in the above scenario!! :-)


steveo

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Re: Looking for Aussie FIRE-ees
« Reply #16 on: March 07, 2017, 01:37:36 PM »
I've heard that australia has a lower requirement for SWR but I am not going to worry about that. In my opinion the SWR is a guide.

Can I ask, please, what are the Australian-specific conditions that influence a safe withdrawal rate here relative to elsewhere?  Even though it's a guide, I'd be happy to know more about any local context considerations for it?

(My FIRE calculations use the 4% rule also, although it'll take some years of compounding for me yet.)

Honestly I don't know. I assume the real stock market returns haven't been as good as in America.

Tax treatment of dividends / franking credits provides an income boost here that you don't get in America.

It's not something that can be quantified easily given the vagaries of marginal tax rates and the variable nature of dividends.

I agree. My gut feel is that we should be able to utilise a higher WR but I have no data or facts to back that up.

Ozstache

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Re: Looking for Aussie FIRE-ees
« Reply #17 on: March 07, 2017, 02:51:54 PM »
I've heard that australia has a lower requirement for SWR but I am not going to worry about that. In my opinion the SWR is a guide.

Can I ask, please, what are the Australian-specific conditions that influence a safe withdrawal rate here relative to elsewhere?  Even though it's a guide, I'd be happy to know more about any local context considerations for it?

(My FIRE calculations use the 4% rule also, although it'll take some years of compounding for me yet.)

Here's a couple of papers that consider Australian conditions against the 4% rule that may be helpful:

https://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf

http://corporate.morningstar.com/au/documents/WhitePapers/Safe_Withdrawal_Rates_Australian_Retirees.pdf

In short, 4% for Australia seems too opimistic for a 30+ year retirement, dropping you below 50% probability of success in some cases. Around 3.5% SWR gets you into 80%+ territory for such timeframes.

mjr

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Re: Looking for Aussie FIRE-ees
« Reply #18 on: March 07, 2017, 08:44:48 PM »
Of course, just because we're resident in Australia doesn't mean that we are limited to the Australian Stock market.  Obviously most of us here will have some exposure to international shares which will also bring in currency risk and/or lower returns due to hedging.

Somewhere between 3 and 4% sounds about right.

LadyFIRE

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Re: Looking for Aussie FIRE-ees
« Reply #19 on: March 07, 2017, 09:06:14 PM »
@Itchyfeet

Thanks for the super well thought out reply :D

I figure if I aim high, I have wiggle room, I can over spend, the markets can crash, and maybe I can pull the plug early.

Maybe not all of those things, but perhaps three out of four without getting anywhere near disaster :)
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steveo

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Re: Looking for Aussie FIRE-ees
« Reply #20 on: March 08, 2017, 12:11:52 AM »
Of course, just because we're resident in Australia doesn't mean that we are limited to the Australian Stock market.  Obviously most of us here will have some exposure to international shares which will also bring in currency risk and/or lower returns due to hedging.

Somewhere between 3 and 4% sounds about right.

I disagree with this and I have no idea what those studies that state that we have a lower SWR are based on. I only skimmed those studies but something is off. The returns in Australia have been great and that doesn't include house prices. The studies even recognise that.

I'm planning on a WR of around 5% and possibly higher. The assumptions of the trinity study to me are extremely unrealistic and provide basically all of us with reason to believe that we are safe with a higher rate. Those Australian studies are a real concern but not in my opinion a concern in relation to the SWR relevant to Australians but a concern in how they analysed the available data. When I FIRE I might spend some time and analyse the figures because those studies are giving off a funny odour.

happy

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Re: Looking for Aussie FIRE-ees
« Reply #21 on: March 08, 2017, 01:54:25 AM »
Hey, if you think you can analyse better than Wade Pfau, go for it. According to Pfau, SAFEMAX for Australia 3.68%, 4% fails 2.5% over 30 years and 5% fails 10% over 30 years. ref: https://poseidon01.ssrn.com/delivery.php?ID=171094066115023091124121097001124096025047071016027028067090065098012022005031070102030099002020054112125064117075095113106117038073039053068117011094074114064109024058060021007099090023028007030067027004086122091120085120020074080029027087074010118&EXT=pdf.

I believe Wade's data and it doesn't seem on the nose at all to me.  I do think sometimes folk here get way too conservative with regard to margins of safety and risk. I also subscribe to Bernsteins idea that you can't control  for life/world events etc beyond 80%, so I think going below 4% is getting too conservative.  Personally I think trying to get 100% certainty by ever decreasing WR is a flawed concept.

FWIW I will probably retire with WR of around 5%, but I will be 60, and funded by my super which will be tax free in pension phase. I also have a relatively short time frame with regards to accessing OAP if things go belly up. However on the downside if things go pear shaped I'm not so likely to be able to fall back on getting a job.

Younger folk might need to be more cautious, and I disagree with itchyfeet that one can always just go on the OAP. With the aged tsunami approaching, I will be surprised if OAP survives in its current state and will be less generous as time goes by. So if you are younger and looking at 30 years before you even reach OAP age...it might not be as good a deal as it is now. OTOH younger folk have more chance to go back to work and correct if things do go badly.


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Dropbear

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Re: Looking for Aussie FIRE-ees
« Reply #22 on: March 08, 2017, 05:51:25 AM »
Thanks for all the helpful comments and links.

The SWR question seems to be slightly complicated in Australia by super.  I should clarify that while I'm guided by the concept of the 4% SWR, living above the SWR in the period between early retirement and access to super seems to be safe - on the proviso that super savings carry one through to a typical life expectancy age?

steveo

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Re: Looking for Aussie FIRE-ees
« Reply #23 on: March 08, 2017, 01:06:55 PM »
Thanks for all the helpful comments and links.

The SWR question seems to be slightly complicated in Australia by super.  I should clarify that while I'm guided by the concept of the 4% SWR, living above the SWR in the period between early retirement and access to super seems to be safe - on the proviso that super savings carry one through to a typical life expectancy age?

I don't think it complicates the picture much. You do have 2 different time scenarios to cater for. One which includes Super and should be your total SWR and another one which means getting to Super. The thing with Super is that once you get there you should also have the pension at 67 so I think getting to 60 is really the key.

Ozstache

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Re: Looking for Aussie FIRE-ees
« Reply #24 on: March 08, 2017, 03:06:37 PM »
Thanks for all the helpful comments and links.

The SWR question seems to be slightly complicated in Australia by super.  I should clarify that while I'm guided by the concept of the 4% SWR, living above the SWR in the period between early retirement and access to super seems to be safe - on the proviso that super savings carry one through to a typical life expectancy age?

I don't think it complicates the picture much. You do have 2 different time scenarios to cater for. One which includes Super and should be your total SWR and another one which means getting to Super. The thing with Super is that once you get there you should also have the pension at 67 so I think getting to 60 is really the key.
This non-super/super stash split issue has come up before here and I have suggested that it is best dealt with by considering the pre-super draw down period first, which then determines the residual required in super to support your overall retirement SWR.

Using the chart below for example, which admittedly is US-based with a 50/50 stock/bonds split but nonetheless illustrates the point of a diminishing SWR the longer the time window, a 10 year run until preservation age like we are discussing here translates to an 8% SWR ie. a stash of 12.5 times your annual retirement spend. If your overall SWR is intended to be 4%,ie. 25 times annual spend, that means 50% of your stash needs to be in your pre-super stash and 50% in super.

As super is more tax efficient than non-super, its net growth and eventual income tax free advantage means that the split should be biased even more towards your non-super stash, but hopefully the general point is clear.


mjr

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Re: Looking for Aussie FIRE-ees
« Reply #25 on: March 08, 2017, 03:31:26 PM »
I disagree with this and I have no idea what those studies that state that we have a lower SWR are based on. I only skimmed those studies but something is off. The returns in Australia have been great and that doesn't include house prices. The studies even recognise that.

I'm planning on a WR of around 5% and possibly higher. The assumptions of the trinity study to me are extremely unrealistic and provide basically all of us with reason to believe that we are safe with a higher rate. Those Australian studies are a real concern but not in my opinion a concern in relation to the SWR relevant to Australians but a concern in how they analysed the available data. When I FIRE I might spend some time and analyse the figures because those studies are giving off a funny odour.

I agree that the Australian share market over time has done very well.  One of those reports, though, declares that Australia has the worst SWR rates over the long term and I suspect this is solely due to a couple of periods where the sequencing of returns from the Australian market were particularly bad.

steveo

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Re: Looking for Aussie FIRE-ees
« Reply #26 on: March 08, 2017, 07:01:36 PM »
I disagree with this and I have no idea what those studies that state that we have a lower SWR are based on. I only skimmed those studies but something is off. The returns in Australia have been great and that doesn't include house prices. The studies even recognise that.

I'm planning on a WR of around 5% and possibly higher. The assumptions of the trinity study to me are extremely unrealistic and provide basically all of us with reason to believe that we are safe with a higher rate. Those Australian studies are a real concern but not in my opinion a concern in relation to the SWR relevant to Australians but a concern in how they analysed the available data. When I FIRE I might spend some time and analyse the figures because those studies are giving off a funny odour.

I agree that the Australian share market over time has done very well.  One of those reports, though, declares that Australia has the worst SWR rates over the long term and I suspect this is solely due to a couple of periods where the sequencing of returns from the Australian market were particularly bad.

This is what I was thinking. We must have had more failing 30 year time periods even though the our stockmarket overall has performed better than other stockmarkets. I honestly don't feel that this is extremely relevant to FIRE though as I assume they use the ASX and Aussie bonds and a 1% fee structure with again the restrictive assumptions underlying the 4% SWR. I doubt many people are going to fit into that category.

We all have to tailor these studies to our situations. I agree that most of us do have to worry about getting to the preservation age to access Super. That is the big piece of the puzzle. This is based on assuming that by the time you've paid for your house (or rent for life) plus enough assets outside of Super to hit the preservation age you would typically have enough in Super anyway. To add to that you can get the age pension from 67 onwards.

In saying all of that I would like to analyse the data myself. It'd be interesting what you can get out of it.

marty998

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Re: Looking for Aussie FIRE-ees
« Reply #27 on: March 09, 2017, 04:20:48 AM »
I disagree with this and I have no idea what those studies that state that we have a lower SWR are based on. I only skimmed those studies but something is off. The returns in Australia have been great and that doesn't include house prices. The studies even recognise that.

I'm planning on a WR of around 5% and possibly higher. The assumptions of the trinity study to me are extremely unrealistic and provide basically all of us with reason to believe that we are safe with a higher rate. Those Australian studies are a real concern but not in my opinion a concern in relation to the SWR relevant to Australians but a concern in how they analysed the available data. When I FIRE I might spend some time and analyse the figures because those studies are giving off a funny odour.

I agree that the Australian share market over time has done very well.  One of those reports, though, declares that Australia has the worst SWR rates over the long term and I suspect this is solely due to a couple of periods where the sequencing of returns from the Australian market were particularly bad.

This is what I was thinking. We must have had more failing 30 year time periods even though the our stockmarket overall has performed better than other stockmarkets. I honestly don't feel that this is extremely relevant to FIRE though as I assume they use the ASX and Aussie bonds and a 1% fee structure with again the restrictive assumptions underlying the 4% SWR. I doubt many people are going to fit into that category.

We all have to tailor these studies to our situations. I agree that most of us do have to worry about getting to the preservation age to access Super. That is the big piece of the puzzle. This is based on assuming that by the time you've paid for your house (or rent for life) plus enough assets outside of Super to hit the preservation age you would typically have enough in Super anyway. To add to that you can get the age pension from 67 onwards.

In saying all of that I would like to analyse the data myself. It'd be interesting what you can get out of it.

4% assumes you never earn a single dollar from paid employment over the 30 years. I find it extremely unlikely that in a 30 year retirement stretch you wouldn't do any paid employment at all. Short term stints at the local coffee shop, to say 3 month contracts in your field of expertise.

If you're good enough to invest your way to FIRE, then you're probably good enough to find simple ways to get through it without failing, that don't impinge on your desired lifestyle.

Maschinist

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Re: Looking for Aussie FIRE-ees
« Reply #28 on: March 09, 2017, 10:57:05 AM »
I've heard that australia has a lower requirement for SWR but I am not going to worry about that. In my opinion the SWR is a guide.

Can I ask, please, what are the Australian-specific conditions that influence a safe withdrawal rate here relative to elsewhere?  Even though it's a guide, I'd be happy to know more about any local context considerations for it?

(My FIRE calculations use the 4% rule also, although it'll take some years of compounding for me yet.)

Here's a couple of papers that consider Australian conditions against the 4% rule that may be helpful:

https://www.finsia.com/docs/default-source/Retirement-Risk-Zone/how-safe-are-safe-withdrawal-rates-in-retirement-an-australian-perspective.pdf

http://corporate.morningstar.com/au/documents/WhitePapers/Safe_Withdrawal_Rates_Australian_Retirees.pdf

In short, 4% for Australia seems too opimistic for a 30+ year retirement, dropping you below 50% probability of success in some cases. Around 3.5% SWR gets you into 80%+ territory for such timeframes.

The study assumes a 1% yearly portfolio fee for all countries.
In the US with Vanguard I'm at ~0.1% fee which means you can add the delta to your SWR.

Most of the European countries performed so bad because of two world wars on their own territory. German and Austrian bonds lost nearly 100% of their value twice. But German stocks survived even that. (long term stocks are much safer than government bonds).
Japanese bonds where nearly worthless after WW2 and on top they experienced the biggest stock market bubble of all times with CAPE ~90 end of year1989 with subsequent decade long decline and negative yield.

Australia, the US, China and others are very unlikely to experience a war on their own territory including infrastructure destruction. As long as they continue to have mostly free markets I would not be worried with anything below 3% SWR; even with super high CAPE ratios like currently in the US

I personally plan with 3.0-3.25% WR and I have nearly 100% in worldwide stocks, but my financial independence period hopefully lasts longer than 30 years.
 
 
« Last Edit: March 09, 2017, 11:06:07 AM by Maschinist »

steveo

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Re: Looking for Aussie FIRE-ees
« Reply #29 on: March 09, 2017, 08:17:14 PM »
I personally plan with 3.0-3.25% WR and I have nearly 100% in worldwide stocks, but my financial independence period hopefully lasts longer than 30 years.

This is up to you but it's an extremely low rate. That would basically never fail.