Calculating how much to live on

Discussion in 'Investment Strategy' started by ellejay, 13th Mar, 2017.

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  1. ellejay

    ellejay Well-Known Member

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    How would you do this? For example, if you have $3.5m property portfolio with gross yields from 11-4.4% . Net is approx $1.8m (includes super). Plan is to retire at 47, sell all property over the following years to fund lifestyle. Assuming a couple with no kids, no mortgage, not big spenders but like nice holidays etc. May do some occasional pt work between breaks.

    For our scenario I thought about basing decision on how much to spend annually on the safe withdrawal rate. Don't want to end up skimping though and having millions in our 80s. Happy to have minimal income from 85yrs.

    How do you calculate a safe amount that you could have avaiable each year from house sales? Assuming 12 ip so could sell one every couple of years.
     
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  2. Anthony Brew

    Anthony Brew Well-Known Member

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    Not advice - just a thought.

    1.8m does not seem like all that much in Australia these days (this is not criticism, just a statement).
    I guess with no kids you could live in a nice apartment, so maybe 750k.
    if you have a remaining 1.1m getting an average of 6-7%, that is about 70k/yr, which provides a comfortable lifestyle if you ask me, since it will not include rent payments.

    Why not just continue within those means without selling?
    If you sell down your assets, you will get less rental income. Are you sure this will last for 40 years? That is a seriously long time!

    Also one thing I realised recently when planing for early retirement myself was that if things go to plan I will semi-retire at about 45, but that leaves 20 years of nothing to do. I will most likely do something like contract work for 3 or 6 months and then chill out for 6 months or a year. Rinse and repeat. With the contract work I could save up and continue paying a bit each year towards a property debt so I could continue growing my property portfolio (although at a slower pace). For that reason I am now planning to semi-retire with a little more debt than I originally planned. 20 years is a long time, and a a combination of a little work (either consistently small amounts or full time contracts with big breaks between), plus if you don't need to use all of the rental income, can together help you increase your overall position over this very long period of time.

    Again - this is not advice - just my own thoughts on something I am now considering.
     
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  3. ellejay

    ellejay Well-Known Member

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    $750k for a ppor? :eek: Forgot to say I'm a country girl. The figure above is hypothetical but ppor is paid off, separate and not even close to $750k :) Also, why would I want to die leaving a buch of houses worth a couple of mil?
     
  4. MichaelW

    MichaelW Well-Known Member

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    Great question and something we're exploring right now.

    We own our PPOR outright so no mortgage costs associated with that. And we also hold another $4.5M odd worth of property at about a 50% LVR so around the $2.3M debt mark. Funny thing is, even at that LVR our yields are such that they're basically cash flow neutral and not putting a penny in our pockets each year. There's a lot of costs outside interest expense which is what really hurts the equation.

    So, our net equity position excluding PPOR of $2.2M odd doesn't generate a penny of income to live off. Our modelling shows this improving over time with us retiring on circa $60K pa in about 10 years time. At least then we get to hold all our property assets and not LOE so that net income continues to increase exponentially from that point.

    PS I think $60K pa for a couple should be fine without any PPOR mortgage costs. $5K a month is a lot of tins of baked beans... ;)

    Cheers,
    Michael
     
  5. Anthony Brew

    Anthony Brew Well-Known Member

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    Sorry, I did not see any info where you were from and just assumed Syd.
    Also did not realise you mean 1.8m without PPoR.
    In that case you can do pretty much anything short of blowing money on coke parties and should be fine.

    btw, you may still be able to live of 70% of the rental income and let the remaining rental income pay off a small property debt while the property continues to appreciate. Over a long period like 10-20 years, it will allow your cash position to continue growing rather than start shrinking because even if you are doing so well, 40 years is a very long time.
     
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  6. Indifference

    Indifference Well-Known Member

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    Cashflow, cashflow, cashflow......

    I'd be looking to maximise my returns whilst trying to avoid taking additional capital exposure risks. I'd assess the portfolio based upon LVR, Yield & CG potential, then order the properties from worst to best. I'd then start doing some calcs on how selling down the list affects cashflow position into a table - Cashflow.

    Concurrently I would construct an Expenses table that has 2 columns: Essential & Desired.

    Essential - all living expenses including insurances, basic entertainment etc. Ie. what you could get by on if you had to without financial stress.

    Desired - add in regular o/s holidays, dining out, nice gifts, club memberships etc...

    I would then compare the 2 tables: Cashflow & Expenses.

    Now, ideally, one would be trying to rationalise the 2 tables to the point where debt is rationalised enough to support the Essential & then Desired cashflows without needing to liquidate all capital. If this can't be done then a few things need consideration:
    • seek out higher yields i.e.. divert capital to other asset classes
    • taxation - are you getting the most out of your capital i.e. maybe fully franked divends could provide some portfolio "balance" & thereby improve net cashflow position....
    • factor in CG of properties moving forward i.e. if selling 1 per year for instance, at year 10, you still have a couple of properties that should have realised significant CG by now.
    • reassess cashflow requirements
    • consider extended semi-retirement i.e. portfolio funds to Essential level or Essential+ & P/T work/business etc. tops up the rest. Then as time passes, capital draw down replaces the P/T income.....
    Some food for thought anyway...
     
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  7. Marg4000

    Marg4000 Well-Known Member

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    And don't look at it as $$$ per year for 40 years.

    Income needs to be higher in the earlier years of retirement while you are younger and fitter. Time to catch up on extended overseas trips and travel.

    Most people I know on their 80s live a much quieter life. Travel dreams have been fulfilled and increasing age slows them down.
    Marg
     
  8. MTR

    MTR Well-Known Member

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    I posted this on another post....

    When you do the sums you’ll see that you need an unencumbered portfolio worth at least $4million to earn that $100,000 a year after tax. Not everyone needs $100,000 pa and I get this. But I need more:p

    Remember that’s $4 million worth of property and no mortgage debt, otherwise your cash flow will be lower.

    And of course you’ll also need to own your own home with no debt against it.

    I expect these yields may be slightly lower today?
     
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  9. MTR

    MTR Well-Known Member

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    I thought $100K would be sufficient to retire on but I think if you want to travel and have a very good life $60K is not much more than the pension add $300K in super, some wrangle living on around $54K pa (part pension)??

    My point is why all this work and energy for $60K, there must be a better way?? higher returns? a mix/different asset classes.
    Also interests rates will have major impact on returns?
     
  10. Perthguy

    Perthguy Well-Known Member

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    In Adelaide, it is not that uncommon to find properties with a 10% gross yield or more. That would give you $400k gross on $4 million worth of property. Of course you would have to be very brave to buy $4 million worth of property with 10% gross yield.
     
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  11. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    That makes little sense to me ?!?!?!?

    If I had $4m unencumbered I would just put all the money in the bank and live off 2% interest of $80k pa and eat away at the principal of $20-40k pa over 40-50yrs

    I get what ellejay is trying to work out and it's hard. I would say if you could generate half your retirement income from rent and then sell every 5 years to generate an additional $250k (ie $50k x 5). If there was NO growth then the 1.8m current net position would last almost 35-40yrs.

    That would give me $50k from sales proceeds + rent per year to live off. Which sounds doable for @ellejay as she lives in the country
     
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  12. MTR

    MTR Well-Known Member

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    PG, I would not touch them. Why? Will they really be positively geared?? I doubt it?? they generally will require more maintenance as they will be older properties and in undesirable areas, which could mean more tenant issues, more vacancies. Positive can easily turn into negative cash flow. Also interest rates are on the rise this will change the bottom line

    Also I did some quick sums on a scenario mentioned above and you make perhaps $2K pa at the expense of growth.... not terribly exciting. Not pooing pooing this strategy, but I think there are better ways, all to their own and happy to be proven wrong.


    Show me the numbers???
     
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  13. MTR

    MTR Well-Known Member

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    but your capital is eroding in the bank inflation etc, with the right choices your asset class will grow, imagine what it would be worth over a 20 year period in property/shares.... and you are living off rents not selling down or LOE
     
    Last edited: 13th Mar, 2017
  14. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I hear you and only a certain personality type would be happy to not grow it but as @ellejay has no kids and no one to leave her fortune too, it's an option

    She can definitely retire on less than $4m unencumbered is what I meant.
     
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  15. Perthguy

    Perthguy Well-Known Member

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    All true except interest rates affecting outcomes. They are unencumbered ;)

    But yeah, I wouldn't spend $4 million on properties in those areas either.
     
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  16. Angel

    Angel Well-Known Member

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    We would go for a little of both. Sell off some property to get rid of all the cr4p that goes with being a LL and keep others for capital growth. At some point it becomes just so much easier to stick it into a (superannuation) pension fund and lose all the stress of being a land lord.

    Given that most of us wont have $4m unencumbered capital to grow, the rest of us mere mortals will be content to have some regular travel, fine food, good health and a decent car.

    My "Retirement Planning" rule of thumb is to calculate what we spend now, then add on some for more travel and more health costs, but take away any costs specifically pertaining to our employment.

    The travel costs can be as high or low as we make them. I imagine some PCers always fly Business Class and stay Five Star. I like the idea of Business Class but I am happy to stay under all the stars and I bet Ellejay would too.
     
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  17. ellejay

    ellejay Well-Known Member

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    Seriously Marisa, I love your work but you are totally off the mark with many of your posts. I think you said you went to US and bought 10 or 11 cash flow properties for cash in one hit. I think you said you also hold 8 or so blue chip in Aus. Deve sites in Melb, Perth and US. Then you jump into threads and ask why everyone isn't doing what you're doing. I can see why you need your 4mil :oops:

    You're giving your kids a leg up (which is great), you're pouring money into super, you love diamonds...all your own comments about yourself. I am not doing ANY of these things.

    I think you said your portfolio nets around $150k pa? Mine is probably half but so what? We both spend most days postiing on here so what are you getting from your extra income that I'm not?

    Stop giving nonesense advice to people on how they need minimum $4mil and no mortgage to retire. Just sounds like an opportunity for you to jump in and telll everyone again how much money you have. Which has zero to do with my question about my situation.
     
    Last edited: 13th Mar, 2017
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  18. ellejay

    ellejay Well-Known Member

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    Apparently according to MTR this is a fate worse than death. Who could possibly survive on around $70k or more per year? Just not worth the effort apparently :rolleyes:
     
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  19. MTR

    MTR Well-Known Member

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    LOL I love your work too.

    My comments were on the assumption of $100K and an example which seems to be what many aim for. Not intended to offend, just ignore it.

    Point taken, happy investing and as I have mentioned in another thread paddle your own canoe just ignore my comments if it does not suit.

    MTR:)
     
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  20. MTR

    MTR Well-Known Member

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    Me:) but we are not all the same, no point judging, no right or wrong really
    Throw it to the forum lets see what most have to say.... I dare you....LOL
    From many threads I have read they aim for around $100K, but who cares, your choice, its just a forum, we all have different opinions. So what you need thick skin on this forum and you don't even have trollers.....
     
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