Looking for comments on retirement plan

A relative has "quietly" acquired bank shares for the last 25 years. Dividend payments are about $90Kpa including franking atm. He said he gambles on Aust Banking FI

 

Ok, if you are going to hold them you need a reason why imho. It will asssit with behavourial aspects.

Re long term market returns, I’d be working on inflation + 3-5% pa. In the current environment ; 5-7% pa. Better to budget with low expectations than the alternative.

 

In addition to selecting a theoretical future average return for your growth assets that is consistent with your inflation forecast as @The Falcon suggest, consider that it takes a thirty-year odd time horizon to have much ‘confidence’ of achieving that average – the shorter the time period the more likely you are to over or undershoot average.

Applying historical volatility to a forecast average of say 7% gives a 95% chance that annual returns experienced in achieving a long-term average of 7% will fall between negative 11.5% and positive 25.5%. As for what the other 5%nmay be……..

If you are adding to or withdrawing from your capital, the sequence of returns is FAR more important than the long-term average, especially the sequence around your peak capital saved period.

Number crunching based on averages can be very misleading.

Scenario testing is better however our actual experience of future returns from growth assets is unknowable no matter how sophisticated we make the models – The conundrum remains, without knowing the return, you can not accurately calculate how much you need to save and how much you can withdraw without running out or underspending. It's art as much as science.

 

Sorry for the radio silence - another weekend slaving in the garden and fixing up bits around the house in anticipation of it being sold some time soon.

Thanks for all the further comments

@Terry_w - good idea but I don't think we have scope to do much else to the house. There's also the emotional side of just wanting to see the old girl gone to a new owner and moving on to new pastures. As for the leveraged investing, I would hope to carry forward a LOC against the new house and go from there. Is leveraging still a viable strategy in retirement phase? I'd assumed this was more about longer term growth - I'm basing this on 4.5% for borrowing, 6% grossed up divi from MLT (for e.g.) to service the interest and then pay it off in 5-10 years time and bank the CG

@Nodrog - point(s) taken. The cash buffer is our comfort blanket against any poor planning and market downturns so that definitely a feature of our plans. The multiple holdings are just the result of buying what looked cheapest at the time and the sensible part of me doesn't see many more being added...until the next bargain maybe...

@dunno - exactly. Even though I have faith in the arithmetic in my model, I still don't trust it to determine our future. The only way I've been able to rationalise this is to stress test the model for various scenarios and when that starts to look ugly, as long as it still looks to be manageable/survivable then that's OK. What is very difficult to model is common sense - i.e. if times are hard, we tighten our belts and reduce income expectations accordingly - that should allow is to accomodate the peaks and troughs in rates of return that go to making up the average.

Thanks again for all the feedback