Early Retirement using Line of Credit on Investment Portfolio

Due to low interest rates on Term Deposits and online savings accounts, it would be interesting to know how much is being deployed by Retirees into managed funds, either through LIC's or ETF's or for that matter direct share investment.

 

I think an early retirement technique would involve a workers comp matter. At least it could run for a few years.

 

I think some posters are talking about something different to the op

 

I don't think there would be a lot...as retiree generation relies on financial planners...they would probably put them in very conservative funds..probably mostly exposed to fixed interest...and less in shares.

 

My retirement funds are entirely invested in shares - If I am going to lose money it will be my doing ... not some fund etc. I figure if my dividends halve I have cash to make up the income difference and there is always the pension...

 

In the last cycle , a " guru " called Steve Navra was a major proponent of such a system . I went to a seminar he ran and asked , " What would happen if property prices didn't go up and you weren't able to borrow more money from the bank " . His reply was " it would be a disaster , but it will never happen " .

Google Steve Navra and see what happened to him and some of his investors . My specific scenario raised wasn't the thing that brought him and many of his clients undone .

However we've certainly seen periods were certain markets have gone sideways for long periods , and the changes that occured to refinancing went well passed what most people expected .

It's a flawed concept . BEWARE.

Cliff

 

+1

Fortunately I managed to avoid getting suckered in by Navra. Ditto with Spann.

 

I'd forgotten about that one @See Change. Steve certainly had a lot of very interesting ideas, he was also an incredible salesman. However this case study affected thousands of people who lost millions. In some cases everything they'd worked their whole lives for was gone right when they should have been retiring comfortably.

Borrowing money can be a useful leveraging tool in wealth creation but it reduces cash flow. Retirement income is about increasing cash flow so you can live off it.

 

Or how about this

Does any one know a single person 10years ago who was definitely going down this Loe route, and to see how they are doing in 2020

 

You are assuming the LOE is only borrowing money repeatedly for the rest of a person's life. This cannot work.

Where it can work is to bring forward retirement by helping to fund retirement for say 10 years or so instead of selling a property. This allows for one more property cycle and increased capital growth on that property - it could double in value in 10 years while interest on an extra $50k drawn down per year will be a tiny fraction of this.

 

Yes correct, i have yet to see or hear of anyone who has used loe and said "yep its worked"

However my sample size/type is probably not a very good sample

 

I know people who have done it, and it worked. But don't know anyone who has even tried to do it as a final retirement strategy.

 

I used LOE as a strategy to retire much earlier than planned about 12 years ago when I was around 48yo. The strategy allowed me to plan to retire earlier, however, my circumstances also changed in a good way in that after a year or so of “retirement” I received offers to work part-time in a consultative role which allowed me to re-enter the workforce in a much more enjoyable and fulfilling way. I was then offered enjoyable positions that suited my interests and also which allowed me more flexibility and work/life balance.

Yes I could have continued LOE, but I didn’t need to as I had a better work/life balance and interest whilst working part time.

I have since fully retired but still have undrawn LOCs of over $2M available should I need them, with still a lot of both debt and equity.

To those who say LOE doesn’t work – you are correct (it will never work for you)! To those who say it does work - you are also correct (if you plan accordingly)

LOE has it limitations and as a strategy one needs a good amount of equity and to have the LOCs available to them before needed. However, I suspect that not too many LOE supporters will voice their support as there are too many naysayers who seem very keen to dispel this strategy perhaps because they haven’t fully explored it or think they know best. Like all strategies it may need tweaking, so it is not necessarily a final end strategy but as a means to quit the work force earlier than planned it is definitely worth consideration.

As a former Somersofter, I also remember all the naysayers poo-pooing the LOE strategy whilst those that were doing it quietly went about their business quietly…........

 

Even without another property cycle it can provide time to access funds from super

 

Yes good point.

There may also be an inheritance on the cards.

Sometimes it is best to enjoy life now rather than waiting to reach the age of 60 and using borrowed money to do this can make it possible.

but you wouldn't live off equity. You would live off rents and borrow to pay the interest and expenses on investment properties...

 

Absolutely!.

 

Interestingly, that's what Michael Yardney preaches in his books. The goal is just living off equity, while the capital growth exceeds the living expense.

 

How old are those books?

 

There's are heap of other useful stuff in his books too. Take what you like, discard what you don't. Keep an open mind.

 

I just finished How to grow multi-million dollar property portfolio in your spare time, 2018 edition.
TBH I am still wrapping my head around the idea.