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Around the Internet => Antimustachian Wall of Shame and Comedy => Topic started by: Bornfreelivefree on February 02, 2015, 06:29:33 PM

Title: Well read newspaper, terrible advice retirement
Post by: Bornfreelivefree on February 02, 2015, 06:29:33 PM
Just read this article. It is in an Australia daily newspaper with very wide readership. No wonder people fear retirement when this is the garbage they get given for advice. I am baffled as to where they get their numbers from. The following paragraph is the pick of the article, I wonder what math is used to figure out that on assets generating 5% return only allow for $34,000 spending a year on an asset base of $1,000,000. They must have used 5% as the total return (income+growth) and deducted inflation to give a net income of just 2%. Or maybe I am just being crazy.........

"So, until then, I would suggest a mix of blue chip shares, balanced managed funds and property. Frankly, I don't think $1 million is enough savings for you to retire at 45. Given your wife's average life expectancy of 41 years at that age (longer if she stays healthy), then to stretch $1 million over that time period, you could only spend around $34,000 a year, indexed to CPI at 3 per cent, assuming the money earned 5 per cent a year."

Even with a SWR of 4% these guys could be spending $40k a year on non housing related expenses for the rest of their lives. Considering they're netting $135,000 as a couple and have three fully paid off properties at 43 (which suggest they have been living frugally to some extent) I would suggest they should be retiring today!!! If they dump the $800,000 home and settle for something around $400,000 and work two more years they would be sitting on around $1.6m (or more depending on how frugal they are) of invested assets plus $400,000 to pick up a house with. That's $65,000 a year plus a paid of property at 4% SWR.

I read these newspaper column on a regular basis and I ahve to say apart from taxation advice anything related to retirement comes straight from the book of insanity.

Any comments??
Title: Re: Well read newspaper, terrible advice retirement
Post by: The_Dude on February 02, 2015, 06:36:46 PM
Doesn't read to insane to me, rather reads like most mainstream advice.  Most of these types of Q&A articles are pretty conservative by nature and so is their advice.  So unless the couple said their expenses were in the 30-60K range its not unusual for the advice to say it won't work.

4% is not a safe withdrawal rate over a 41 year period if you assume 3% inflation and 5% returns, aka 2% real returns...

EDIT:  At a 95% success rate a $1M portfolio of 75% stocks 25% bonds over 41 years cfiresim gives a maximum spending rate of $35K.  Of course that is US market centric.
Title: Re: Well read newspaper, terrible advice retirement
Post by: Bornfreelivefree on February 02, 2015, 06:55:56 PM
Fair enough dude,

However, I think in Australia 2% real returns would be abnormally low considering an ETF covering the ASX 200 is going to produce 4.5-5% income, before considering growth. It is also relatively easy to find property yielding 6% plus with a good outlook for growth in/around major capital cities. This would gross even higher as with the tax free component being $36K between the couple they would likely get another chunk of money back at tax time thanks to franking credits. I would expect their expenses to be in that range considering they have been able to clear the debt on three properties and do not want to go on overseas holidays. They would also own their own giving them a very nice lifestyle on $60,000 per year.

Another point to note, this particular column preaches about investing in growth assets, it is contrary to their other advice when they are saying to expect real returns of 2% when they often talk about targeting 6-7% asset value growth on property or shares plus income on top.

Title: Re: Well read newspaper, terrible advice retirement
Post by: Leanthree on February 02, 2015, 08:47:16 PM
Yeah, I mean the article is pretty reasonable. The difference between a 3.4% withdrawl rate from the article and a 4% one from MMM isn't that dramatic.

I'd say 4% is a fine place to start then if you are more averse to ever possibly having to 1) go back to work or 2) decrease your expenses then head towards what the article recommends. If you are totally comfortable with #1 or #2 above then maybe head more in the 5% direction.