How big a portfolio do you need? (aussie based)

Safe Withdrawal Rates for Aussies — Part 8: Summary (So Far) – Ordinary Dollar

Last in a series of articles on Aussie SWRs by asset allocation. I haven't looked at it in detail and did notice what I thought might be some anomalies which can't be explained. Still a good starting point to give you an idea of what you need to accumulate.

 

I think most investors aspire to a withdrawal rate of 0%, that is you just live off the dividends/rents and don't eat into capital. But it is interesting the graph in the article shows that the 'safe withdrawal rate' changes over time and ranges from about 3.9% to just over 12% pa. So this means if someone needed $40k pa pretax income they could invest just $1mil and just sell $40k worth of shares every year - forever as the shares remaining would grow faster than you are withdrawing. And this is assuming there is no income. If you take income into account you might be able to retire on a much lower sum.

 

Those numbers assume long term average growth rates, right. Problem is share returns tend to be lumpy.

 

They are based on actual returns. So it takes into account sequence risk etc. That's why there are failure rates

 

I believe it takes into account the income, didn't have a chance to read it all to confirm.

 

SWR includes the income. If you use 4% as your SWR then earn 4% dividends, you can't sell more shares, you can only use the dividends. if your dividends are 3% you can sell 1% to make up the difference. The key for Aussie LIC investors, if your yield is 5% then you are supposed to reinvest 1%.

 

I'm gunning for a min $2m portfolio and blended 5% net return. LIC's and direct shares (to boost the dividend %).

Majority of 'safe' LICs return only 4%.

 

depends on your lifestyle, really,

are you willing to cut down on your lifestyle, hence settle on less.

or maintain the same without working (usually its the biggest income generator)

 

Don’t forget to include franking credits on top of 4% yield

Cheers
Oracle.

 

Au contraire. Franking only applies when it comes to completing an income tax return in which case there will be either a tax refund (Hmmm?) or less tax to pay or neutral.

It doesn't impact the cash in bank received from dividends/distributions during the financial year. Cash flow to meet expenses is critical I think. Hoping to get a tax refund isn't. Plus it is possible the tax treatment of franking may change, so Boom goes the hope.

I take no notice of franking when it comes to placing funds.

Others have a different view of course.

 

franking matters because im going to assume most people going to need more than 18k a year ?
also labor is just taking away the "cash" refund part of the franking not the entire franking ( i might be wrong) because i also dont take into account franking.. im about 30-35 years away from retirement lol.

 

Well, in retirement, if I'm earning nothing but dividends from fully franked shares, then the net return after tax ie cash in my pocket is approx 4%, no?

 

If labor keeps it .

 

No. well, perhaps if your tax rate is 30% or 27.5%, but you might have to pay more tax or receive back tax from franking credits.

 

Yeah, it's one of those things. Get a $70 dividend and it may have a $30 franking credit attached. You cannot spend or use the credit during the financial year as it isn't in your bank account. Only after the financial year when doing the tax return does it come in to play is my way of looking at it.

 

I say 3m, 4% no franking credit required, live on 80K income, save 40K for rainy day each year in term deposit.

by the time the crisis hit you can still be able to average 80K a year income.

by then no kids, house paid off, just food, utils and holiday

 

I'm using your $94K tax free model, with circa $100K split between my other half and I. Hopefully, with the 30% paid by the company, that income will be (personal income) tax free.

 

So much focus on initial yield. Meh

 

If your taxable income was $50,000 then the amount of tax payable, in 2019, would be

$8,018 assuming a resident without hecs debt etc


But if you received full franked dividends gross up to $50k you would be receiving $35,000 plus $15,000 in franking credits.

So you would get about $7,000 tax back approx..