How much wealth is enough?

[qldfrog]

based on my own searches:
for a couple:
$60k(2014) a year after tax, with no debt and own PPOR is enough to live a reasonably indulgent lifestyle (inc a holiday O/S a year).
Not a splashing budget but you will have a life.
if you want this to be done without touching your capital and not loose on inflation (return let's say of 3 % above inflation on average)->
these 3% would need to be able to give back $60k+$20k tax->$80k a year
80k at 3%-> investment of 2.6 millions (excluding PPOR)
so IMHO wealth is enough for me at $2.6 millions:
at that level, you do not have to work, you may work but you do not have to
and your wealth should return you an income however old you will ever get

So the answer is:
2.6 millons in 2014 AUD
maybe 2.5 if you do not expect to live forever

 

[Vixs]

The way it appears to be structured robs Mr. 20 Something of options and precious deductible interest from the start of his investment journey, when it can be easily preserved. Your suggestion that an IO mortgage with offset is a 'giant credit card' is thin, as an LOC is just that moreso. Mortgage offset accounts preserve the deductible portion of the loan, and has ready access - so you can have your cake and eat it too. An LOC doesnt allow this, as if you mix any personal funds, or take out funds for personal use, you have to apportion the deductible and non deductible portions, creating more cost for an accountant to do so. Continuing this has potential to create a real mess.

You said yourself Mr. 20 Something saved 75% of his net income. That is not a person with 'bad cash habit'. He has proven discipline, and would probably adjust quite easily to a well structured loan structure that allows all the principle of his HL paid down to be deductible using debt recycling.

Plans should start with the end goal and work backwards to work out how to achieve that goal. Plans don't work any other way, otherwise it's not a plan, but a motion to nowhere.

pinkboy

pinkboy, I see your point, but there isn't a one size fits all strategy.

I think there's been something lost in translation here. I did in fact state that a LOC was a giant credit card, not a mortgage offset account on an IO loan. I also stated that a LOC was a bad idea for people with bad cash habits, which you're correct, he doesn't have. Because of that, a LOC on his PPR was a suitable outcome for him to allow debt recycling. Obviously mixed purpose loans would be a nightmare, and so having a facility with separate loan accounts is the better outcome. That's how he's set up.

Not everyone wants to carry the maximum possible debt just because it's deductible, especially when their plans don't have earning an income from that asset as anything but a contingency plan and with no estimated time horizon. Some people want to build equity through things other than time, or want to diversify their investments out of 100% real estate in the same city.

I can appreciate where you're coming from. You've been spot on with what you've said, however there are individual circumstances to consider and only one of us was able to consider that.

I don't want to keep taking this thread off course, so I might step out until I have something to add to the topic.

 

[sptrawler]

based on my own searches:
for a couple:
$60k(2014) a year after tax, with no debt and own PPOR is enough to live a reasonably indulgent lifestyle (inc a holiday O/S a year).
Not a splashing budget but you will have a life.
if you want this to be done without touching your capital and not loose on inflation (return let's say of 3 % above inflation on average)->
these 3% would need to be able to give back $60k+$20k tax->$80k a year
80k at 3%-> investment of 2.6 millions (excluding PPOR)
so IMHO wealth is enough for me at $2.6 millions:
at that level, you do not have to work, you may work but you do not have to
and your wealth should return you an income however old you will ever get

So the answer is:
2.6 millons in 2014 AUD
maybe 2.5 if you do not expect to live forever

I'd agree with that.

 

[havaiana]

When you are only seeking to give, you can truly have the wealth in your heart.

Hi Lee. Your reading speed and comprehension is truly impressive

 

[Buckfont]

When you are only seeking to give, you can truly have the wealth in your heart.

Jeepers, I'd almost forgotten about the hippies. That's what happens when you get into the 60's

 

[DB008]

based on my own searches:
for a couple:
$60k(2014) a year after tax, with no debt and own PPOR is enough to live a reasonably indulgent lifestyle (inc a holiday O/S a year).
Not a splashing budget but you will have a life.
if you want this to be done without touching your capital and not loose on inflation (return let's say of 3 % above inflation on average)->
these 3% would need to be able to give back $60k+$20k tax->$80k a year
80k at 3%-> investment of 2.6 millions (excluding PPOR)
so IMHO wealth is enough for me at $2.6 millions:
at that level, you do not have to work, you may work but you do not have to
and your wealth should return you an income however old you will ever get

So the answer is:
2.6 millons in 2014 AUD
maybe 2.5 if you do not expect to live forever

But if you get a return of 6% or 10%, you obviously don't need as much tied up in investments.

If you have $1mil in cash and can find something that returns 10% (shares/property, can be done), that's more achievable than saving for $2.6mil

 

[qldfrog]

But if you get a return of 6% or 10%, you obviously don't need as much tied up in investments.

If you have $1mil in cash and can find something that returns 10% (shares/property, can be done), that's more achievable than saving for $2.6mil

can be done...but would you risk it my 3% above inflation is not that bad.Ask any japanese investor in the last 30years...

 

[sptrawler]

can be done...but would you risk it my 3% above inflation is not that bad.Ask any japanese investor in the last 30years...

Sorry danny, but I agree with frog, you can't rely on stupid returns or on a government pension.
If you don't want to rely on luck or a hand out, you need 2.5mill, in todays terms.
So forget about quick get rich schemes, get a plan in place and grind it out.

It's not that hard, I tried to talk my m.i.l to buy 2000 CBA share in 1994 at $10 i.e $200,000.

Today she would be getting $120,000 dividend, she chose to leave it in CBA on term deposit. OMG

But she is still happy with her choice. the government pension is still there.

Just buy for the long term.IMO

 

[burglar]

... I tried to talk my m.i.l to buy 2000 CBA share in 1994 at $10 i.e $200,000 ...

If I point out the mathematical error will you post me a cheque for the difference?

 

[DB008]

can be done...but would you risk it my 3% above inflation is not that bad.Ask any japanese investor in the last 30years...

I agree.

However, when you retire at 60 or 70, do you/should you, really take inflation into account? Or as much as people harp on about it?

How long will you be active for after you retire? 15 years? Do you still want to go on cruises/flights at 85?

With your numbers you are talking about people retiring at 65 and still going on O/S trips till they are 95.

 

[sptrawler]

If I point out the mathematical error will you post me a cheque for the difference?

Oooops, should have been 20,000, too busy wiping my eyes.

 

[DB008]

What if you want to retire at 50 - 55.

I think what frog is getting at, is the sum required to ensure the capital isn't eroded and a reasonable standard of living maintained.
If like the U.S and U.K, returns fall to extremely low levels, $2.5m will still give a livable income.

Yes, but getting to 2.5 million is a big ask and might be too high for average people to aim for?

Aiming for something lower, with a higher return might be easier?

 

[burglar]

Yes, but getting to 2.5 million is a big ask and might be too high for average people to aim for?

Aiming for something lower, with a higher return might be easier?

If I had 2.5 mill, I could live on an annuity drawdown alone, for 25-100 years (depending on inflation and lifestyle).

 

[pinkboy]

Yes, but getting to 2.5 million is a big ask and might be too high for average people to aim for?

Aiming for something lower, with a higher return might be easier?

If being average is all that a person aspires to, then they should settle for average.

Only those with extraordinary drive will see the fruits of their labour/sacrifice.

If you always do what you've always done - then you'll always get what you have always got!


Never assume something with higher return is a sure bet. High return = Higher risk. Hedge you bets with some more trusted return in your core holdings to at least fall back on when the risk element bites.


pinkboy

 

[DB008]

If being average is all that a person aspires to, then they should settle for average.

Only those with extraordinary drive will see the fruits of their labour/sacrifice.

If you always do what you've always done - then you'll always get what you have always got!


Never assume something with higher return is a sure bet. High return = Higher risk. Hedge you bets with some more trusted return in your core holdings to at least fall back on when the risk element bites.


pinkboy

Points taken. And I agree, which is why I was kind of saying that $2.5mil is a fair amount of money to accumulate.

High return doesn't always mean higher risk IMO. If your after 20%+ returns it probably does, but l wouldn't classify my shares that consistently return 10% high risk, which is a lot more than 5% (ie, cash).

 

[Craton]

Why did the word infinite rear its ugly head when I read the OP subject :

Very subjective and I guess too, how much materialism one is into but I'm simples and as long as the bills can be paid, there's fuel in the tank, food and drink on the table and there's a shekel or two for the odd trinket/toy and the inevitable rainy day, that's enough.

Of greater importance to me at least, is the amount of love that's in one's life, sorta like notting's post. So in that regard, infinite wealth can't buy what we all really crave for, to love and be loved.

I think the main thing though is to have enough so that the almighty $ doesn't send one to Beyond Blue...

 

[Julia]

With your numbers you are talking about people retiring at 65 and still going on O/S trips till they are 95.

Realistic point. As would be some suggestion that if you still had 2.5M at 90 then why on earth wouldn't you be prepared to spend some of that capital?

Yes, but getting to 2.5 million is a big ask and might be too high for average people to aim for?

Aiming for something lower, with a higher return might be easier?

Agree. Considering the meagre amounts the next generation of retirees will have saved, the notion of the average person amassing between $2.5 and $3M is pretty unlikely in the foreseeable future.

I'd also say, from the POV of a self funded retiree since late 40's, the satisfaction of achieving such a status is questionable when you see all the wasters getting more and more while one's own access to any benefits is zero.
Sends a pretty poor message in terms of incentive imo.

 

[Vixs]

If being average is all that a person aspires to, then they should settle for average.

Only those with extraordinary drive will see the fruits of their labour/sacrifice.

If you always do what you've always done - then you'll always get what you have always got!


Never assume something with higher return is a sure bet. High return = Higher risk. Hedge you bets with some more trusted return in your core holdings to at least fall back on when the risk element bites.


pinkboy

Sounds like Grant Cardone. Certainly doesn't sugar coat mediocrity for people - I like the way he talks.

 

[qldfrog]

the figure given 2.6 once reached allows anyone to retire straight away and never touch the capital,
I also believe that at 95, you may not need holiday but while dribling lying on your hospital bad, the bill will still be $200+ per day!!!!!!
so expect to actually need more at the end..unless a swift end is your fate, many are not so lucky

 

[sptrawler]

the figure given 2.6 once reached allows anyone to retire straight away and never touch the capital,
I also believe that at 95, you may not need holiday but while dribling lying on your hospital bad, the bill will still be $200+ per day!!!!!!
so expect to actually need more at the end..unless a swift end is your fate, many are not so lucky

I still agree with you.
Too many people are expecting the government pension to kick in.
From personal experience, years ago, the government could quite easily say "come back, when you have spent your savings".

Then as Julia stated.

I'd also say, from the POV of a self funded retiree since late 40's, the satisfaction of achieving such a status is questionable when you see all the wasters getting more and more while one's own access to any benefits is zero.
Sends a pretty poor message in terms of incentive imo. .

So $2.6m makes sense.