What's your retirement asset allocation percentages?

[sptrawler]

That's very true. And you can do exactly that, and live happily ever after.

Zaxon, with regard the ETF Vs the LIC, looking at VAS they seem to be selling at 2.13 times book value, yet MLT which is a LIC appear to sell at very near NTA backing.
Is there a difference between the ways they are valued, or is it just the fact the ETF is more popular, therefore commands a higher relative price?

 

[qldfrog]

And isnt any serious divergence between a nta and share value an absurdity and a recipe for poor dividend return?

 

[Zaxon]

I am certainly thinking along the line of % drawdown per annum. That way, in the leaner years when the market returns are poor the amount withdrawn will also be lower based on %'s. If it's a fixed amount, it can end up depleting too much of the fund during a downturn.

I like your approach, and for exactly the reason you've stated!

 

[Zaxon]

Both my wife and I draw the minimum amount of 4%.

4% of AUM, or 4% of retirement balance + CPI?

An aged care facility will cost each person around $1,200 week out of your own savings ATM if you are not entitled to a pension. You need cash flow for such events. You don't want to end up in some government funded facility sharing a room with 4 other people, not a nice way to check out of this world.

Wow to the cost. And I totally agree with the justifiable fear of ending up crammed into some aged facility, looking forward to the weekly kerosene bath.

I have this theory that, for the price you'd pay to go into some retirement home, you could hire a nurse yourself. I'm sure there's a person with nursing training, who only wants a part time job. (Perhaps they're raising kids or something). Pay them to come to your house for an hour, 7 days a week. Have an emergency button you could push if necessary, etc.

You'd end up with far cheaper care, be given as much attention or more than you'd get in a retirement home, and as you can choose who you hire, you can have someone who actually is prepared to care.

It's just a theory. I've never worked out the numbers. But it seems right to me.

 

[Zaxon]

Hi Zaxon, there people out there have done work based on history for us.
There is a chart on page 4 showing the probability (based on history) of your money lasting the distance. 4% looks pretty good.

I expect many people to be using the 4% SWR. But not everyone. And not myself . But it's an excellent default position, and probably serves most people.

 

[sptrawler]

4% of AUM, or 4% of retirement balance + CPI?

Wow to the cost. And I totally agree with the justifiable fear of ending up crammed into some aged facility, looking forward to the weekly kerosene bath.

I have this theory that, for the price you'd pay to go into some retirement home, you could hire a nurse yourself. I'm sure there's a person with nursing training, who only wants a part time job. (Perhaps they're raising kids or something). Pay them to come to your house for an hour, 7 days a week. Have an emergency button you could push if necessary, etc.

You'd end up with far cheaper care, be given as much attention or more than you'd get in a retirement home, and as you can choose who you hire, you can have someone who actually is prepared to care.

It's just a theory. I've never worked out the numbers. But it seems right to me.

The nurse idea is what we have planned for the mother in law, she is happy with it, we will see how it works out.

 

[Zaxon]

The draw down from super is legislated, starting at 4% and increments with age to 14%.
https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=10

An excellent point! Which begs the question, when people on ASF say they only draw dawn 3.5% (etc), that couldn't be based only on super.

Surprisingly, if you retire at the normal age of 65+, you're forced to drawdawn 5%.



For everyone who things retirement = stick everything into Super, and then use the 4% SWR, wouldn't actually be allowed to do that (at least not in the first few years). A scary thought.

Outside of super, it is treated as income so normal tax rates apply, therefore the draw down + cpi, has to include tax.
So the choice of super, or holding outside of super, or a combination of both would probably have an effect on the way people draw down the money.

Very good. So the drawdown minimum only applies to super, since that determines whether you get to keep the "zero tax" status of your super. Your whole AUM (super + taxable investments) are assessed when it comes to eligibility for the pension. In this case, it's a deemed % return you're assessed on, not your actual returned.

I think I have all that right.

 

[Zaxon]

Zaxon, with regard the ETF Vs the LIC, looking at VAS they seem to be selling at 2.13 times book value, yet MLT which is a LIC appear to sell at very near NTA backing.
Is there a difference between the ways they are valued, or is it just the fact the ETF is more popular, therefore commands a higher relative price?

There's a difference. So book value in ETFs, is the underlying book value of the companies that it holds.



For instance, CBA has a P/B of 1.96. So if an ETF held 100% CBA shares, it would report its price-to-book ratio as 1.96.

The LIC uses "book value" to mean AUM - how much their holdings are worth on the market, not the book value of the underlying companies it holds.

Trixie!

 

[Zaxon]

The nurse idea is what we have planned for the mother in law, she is happy with it, we will see how it works out.

I'm glad this is working in practice. Excellent info!

 

[Sharkman]

As a second question for everyone: what is your withdraw rate when you retire? Are you doing a fixed rate based on your balance on retirement + CPI? Are you doing a variable rate as a percentage of your assets under management each year? And what percentage are you using?

my target is 2.5%. i'm currently in the low 3s, so i probably could retire now, but as much as i've grown to hate the corporate treadmill these days, i can still summon up the willpower to stay with the plan and stick it out another 2-3 years. though if one day i wake up and feel that i really can't take it any more, i always have the option of throwing in the towel and calling it quits in my back pocket.

think i wrote about this a while ago, can't remember the specific topic now, think it was something to do with ETFs, but i'm not too keen on the widely touted 4%, for a number of reasons.

it has a small but noticeable chance of failure, AND it's based on a 30 year retirement timeframe. all four of my grandparents lived into their 90s (one is still alive), not only did they live during a time when humankind was less technologically advanced, but they lived their whole lives in developing nations. so with that genetic background and the medical advancements of today, i have to consider the (tantalising/frightening/somewhere-in-between) possibility that i may actually wind up hitting triple figures. since i'm looking at retiring in my early 40s, that could be 60 years of retirement to fund. i don't want to be continually worrying about that small chance of failure for decades on end. of course nothing's ever 100%, but i'd like to think a 2.5% drawdown is at least a 99.

as tech/a wrote, it is far easier to expand your lifestyle to fit your budget, than expand your budget to fit your lifestyle. i'm far more at ease with the idea of planning super conservatively, then living more luxuriously if the risks don't eventuate, and if things go to crap, probably still being able to live comfortably without cutting back on lifestyle significantly.

i'm not looking to merely maintain my current lifestyle in retirement, i want to be able to improve my quality of life during it. new medical treatments, the fancy new gadgets/toys/forms of entertainment that people can come up with in the future, those things probably aren't going to come cheap. i'd like to be able to afford those without constantly worrying about outliving my capital. that's the point of retirement isn't it, to enjoy life, not to be always stressing about your finances. so i'm after the extra growth that a 2.5% drawdown should provide, to cover for both actual inflation and lifestyle inflation, and i'm willing to grind thru a few more years of the rat race to get there (for now, anyway).

 

[Zaxon]

how do you keep your draw down at 4%?
Super has increasing draw downs.
Outside super has tax implications.
Which leads to another discussion, this thread seems to be good at that.

These are excellent questions. The method that makes sense to me, is to take your mandated drawdown of 7% when you're 80, for instance, pay yourself the 4% (insert figure here), and put the remaining 3% into taxable investments. You can achieve whatever "effective drawdown" you want.

The big question is how much money you want at death. If you have no kids, or believe you "came into the world with nothing so you'll going out with nothing", then you'd slowly increase your drawdown percentage as you aged. This is what the government's mandated drawdown is designed to do - make you go broke on the day you die.

The complexity comes from not knowing your date of death - it would be so much easier if we knew, and could calculate backwards . The other unknown is medical costs: are you going to slip away in your sleep relatively young, or live on endlessly, needing every medical facility ever invented. Such a big unknown.

On the other hand, if you are wanting to leave as much money for your kids as you can, or you 25 y/o lover that moved in on your 80th birthday, in a sense it simplifies things. Your aim could be, say, to keep your AUM paced with inflation after your cost of living drawdowns. If you happen to live an extra long time, or your medical expenses shoot up towards the end, at least you're covered, even if there's a bit less left.

 

[aus_trader]

There's a difference. So book value in ETFs, is the underlying book value of the companies that it holds.

View attachment 98491

For instance, CBA has a P/B of 1.96. So if an ETF held 100% CBA shares, it would report its price-to-book ratio as 1.96.

The LIC uses "book value" to mean AUM - how much their holdings are worth on the market, not the book value of the underlying companies it holds.

Trixie!

Certainly Tricky, cheers for clarifying that.

 

[Zaxon]

In the final washup, "our" investments are a reflection of our lives, and will likely end up a prelude to our immediate families' future "investments" (over which we will have no control)

​

I was saying to my partner just the other day, if we leave money to the relatives, I'd like to set up a testamentary trust, give them no direct access to it, and have them paid 4% (insert figure here) from it each year. I see it as good money mangement teaching opportunity from beyond the grave, and they'd have a reliable monthly income for the rest of their life.

I often think, if I get lucky and pick a multi-multi bagger …. and get to retire early, I'll most likely be bored
Therefore, picking the wrong Stocks most of the time is probably in my best interest
With that in mind … Some of us are doing extremely well

​

Ha ha! That's the funniest thing I've read all day.

 

[Zaxon]

my target is 2.5%. i'm currently in the low 3s, so i probably could retire now, but as much as i've grown to hate the corporate treadmill these days, i can still summon up the willpower to stay with the plan and stick it out another 2-3 years.

Well done! You'll be able to "fat" FI/RE. Very good position to be in.

i'm not too keen on the widely touted 4%, for a number of reasons.
it has a small but noticeable chance of failure, AND it's based on a 30 year retirement timeframe. all four of my grandparents lived into their 90s (one is still alive), since i'm looking at retiring in my early 40s, that could be 60 years of retirement to fund. i don't want to be continually worrying about that small chance of failure for decades on end.

You make an excellent argument for going ultra concervative. And curse those excellent genes of yours

i'm not looking to merely maintain my current lifestyle in retirement, i want to be able to improve my quality of life during it. new medical treatments, the fancy new gadgets/toys/forms of entertainment that people can come up with in the future, those things probably aren't going to come cheap.

Totally agree. Well, that's the ideal retirement. Sadly, one most people will never see.

 

[Zaxon]

As a second question for everyone: what is your withdraw rate when you retire? Are you doing a fixed rate based on your balance on retirement + CPI? Are you doing a variable rate as a percentage of your assets under management each year? And what percentage are you using?

OK my turn. My plan is to take a fixed % of AUM (Assets Under Management) each year. In my case, that will be 5%. But haven't I breached the 4% rule? I have. It's time to report to the headmaster and explain why!

The 4% SWR draws an ever increasing amount from your savings over time. If the market crashes by 50% - too bad! Pay up chump! I want all my money, as usual! Or if the market doubles overnight, although we're now twice as rich, we pretend we're not. It's like being a contractor with a dramatically different income year to year, but pretending you're a salaried worker.

Having pointed out its weakness, in general, I think the 4% SWR is right for most people. But there are other equally valid methods. Which brings me to the fixed % AUM model.

The fixed % takes into reality what's actually happening with your money. If the market doubles - you're rich. You get to pay yourself more. If it crashes - it's time to tighten the belt. In a sense, it's a form of "dollar cost averaging", but in reverse.

In a sense, the fixed % method has an inbuilt safety mechanism that the 4% SWR doesn't have. Say I retire with 2 million, I'm paying myself 5%, so that's $100k each year. And then the market crashes, as we all know it will do every 20 years or so. My AUM is now only 1m. Oh no! That year, I take out my 5%, but alas, it's only $50k I'm being paid. Boo for me! But ya for my retirement nest egg. In dollar terms, I've agreed to take a pay cut during the bad times. That provides an inbuilt level of safety during bad times, and helps to protect your investments during a crash. Even during prolonged bad markets, you keep protecting your investements by taking less (in dollar terms)

The one drawback - and it's a pretty big one - is that you have to be OK with wildly fluctuating drawdowns. The best way to be OK with this, if you have a "smoothing" mechanism. I plan on running 90% shares, 10% cash/bonds. That 10% = 2 years of savings. And this is how the smoothing is done.

Using the previous example, we take a "moving average" of the incomes over several years. So let's say that's $75k. On a year where my drawdown equals $75k (by chance), then the money goes straight from the shares (dividends + capital sales if needed), into my pocket. The bond smoothing fund isn't touched.

Any year where my return is >$75k, I keep the 75, and put the rest into the bond smoothing fund. On years where my return is <$75k, then I top up the amount to $75k from the bond fund. If I pick that average right, then I should be able to play myself a consistent wage, indefinitely.

OK. So what I get to live off isn't quite so choppy as it first appeared. But how can 5% be safe for you, whereas the Safe Withdrawal Rate is only 4%? Well firstly, the 4% Rule is based on having 60% stocks / 40% bonds. By definition, the more bonds you have, the lower your expected return. But the more stable that return is. So they're trading away stellar returns, and instead getting better consistency.

Due to my much higher stock percentage, it makes sense I should be able to outperform 4% over time. If the total return (dividends + price rise) of the ASX or S&P500 is around 10% per year (and it has been if you look over long periods of time), take away 2% (or so) for inflation on average, leaving 8% real returns. I'm taking 5%. In theory, my assets should grow by 3% annually, give or take, over time. And as we've already established, after market crashes or extended sideways market, I'm taking a smaller dollar amount to compensate for that. Essentially, I'm trading consistency, for hopefully better returns.

That's the theory. It has the potential to outperform the 4% SWR in terms of growth, but it's not for the feint of heart. In a sense, I'm treating my nest egg as an active asset I'm trying to grow, rather than a passive annuity I'm drawing down on.

 

[Belli]

I was saying to my partner just the other day, if we leave money to the relatives, I'd like to set up a testamentary trust, give them no direct access to it, and have them paid 4% (insert figure here) from it each year. I see it as good money mangement teaching opportunity from beyond the grave, and they'd have a reliable monthly income for the rest of their life

I suspect the Will maker would be unable to specify a percentage. You cannot fetter the discretion of the Trustee and, if it is a Discretionary Testamentary Trust, the Trustee determines the amount of income, if any, allocated to each beneficiary. Possible Corporate Trustee in which case a beneficiary can be a Director and then guess what can happen?

It is also possible for a beneficiary to opt out of the Trust in which case they are able to access the capital and do with it what they want. Also a DTT has a limited span of 80 years from when it first comes into effect. There are various ways around this but it requires careful planning and very sound legal advice.

Many, many aspects such as Beneficiary Controlled Testamentary Trusts, Special Needs Trust, Superannuation Death Benefits Proceeds sub-Trusts (with Binding Death Benefit Nomination making the superannuation payment to the Estate or Legal Representative) and much more.

A vast subject and it will cost to get it right initially plus future costs as it will need to be reviewed as circumstances change, eg definition of children (IVF, surrogate, etc), blood line and so forth.

 

[Bill M]

4% of AUM, or 4% of retirement balance + CPI?

Yes it is 4% AUM, recalculated on 1/07 each year. What ever the balance is on that date is what the 4% is calculated on, CPI not included. We will do that as long as we can but if we need more and we need to eat into capital then that is what we will do.

Wow to the cost. And I totally agree with the justifiable fear of ending up crammed into some aged facility, looking forward to the weekly kerosene bath.

I have this theory that, for the price you'd pay to go into some retirement home, you could hire a nurse yourself. I'm sure there's a person with nursing training, who only wants a part time job. (Perhaps they're raising kids or something). Pay them to come to your house for an hour, 7 days a week. Have an emergency button you could push if necessary, etc.

You'd end up with far cheaper care, be given as much attention or more than you'd get in a retirement home, and as you can choose who you hire, you can have someone who actually is prepared to care.

It's just a theory. I've never worked out the numbers. But it seems right to me.

Yes that all sounds doable but it just doesn't always work out that way. When both of you have dementia then you need 24/7 looking after. Unfortunately both my parents were in Aged Care Facilities when they passed and I have had first hand experiences of what goes on at that stage of life. It's not pretty, it is better to be prepared before you get to that point and hope to God that there is someone trustworthy to help you get set up in a nice place.

 

[tech/a]

Good advice … and certainly not wishing to appear unduly negative, but

In the final washup, "our" investments are a reflection of our lives, and will likely end up a prelude to our immediate families' future "investments" (over which we will have no control)

Yes this is true.
But look beyond the Normal investment. For those entrepreneurial there are some great opportunities to be
involved in owning or part owning businesses which can supply a passive or not so passive income and help
with that feeling of still contributing to society. Not to mention capital appreciation possibilities. At any age--Older age CAN be beneficial.

I often think, if I get lucky and pick a multi-multi bagger …. and get to retire early, I'll most likely be bored as crap lol …..

Yes agree see above. I see this all the time. Don't under estimate that feeling of worth---a lot of retirees throw themselves into committees
for exactly that reason. Why not put that effort to work for yourself.

Therefore, picking the wrong Stocks most of the time is probably in my best interest

With that in mind … Some of us are doing extremely well

The very first thing to do is drop anything that is continuously detrimental to your financial health
You can pick 10 wrong stocks and take a 5% hit to capital as long as you pick 1 or more stocks which return over
70% of your capital---depending on where you start in your win loss ratio!

To me having to concern myself with what % of draw down from funds I can live with ---with an unknown time frame AND quality of life Ill have or not have going forward doesn't cut it.

I want to do what I want NOW. NOW is today tomorrow and the next day---
I dont want to scrimp and save thats what I did to get here!!!

 

[barney]

A lot of quality postings on this thread. Well done to all the contributors

I want to do what I want NOW. NOW is today tomorrow and the next day---

Absolutely. Positive attitude for the present ….. with that thought in mind...

Saving or working to accumulate for retirement is a perfectly rational human plan of attack.

However, I'm sure there are many who put undue emphasis on future wealth creation.

Having all the money in the world for that "rainy day" scenario will be less than fulfilling if you can't lift the umbrella

On the flip side, you will be able to afford to pay someone to hold the umbrella for you so there are obviously pros and cons

owning or part owning businesses which can supply a passive or not so passive income

I'm sure a lot of people would be interested in this topic.

Apart from Property and Shares …. What types of businesses would you consider have the most likely passive income generating potential? (Mainly for us slightly older dudes who need occasional physical assistance/resuscitation) ​

 

[Zaxon]

I suspect the Will maker would be unable to specify a percentage. You cannot fetter the discretion of the Trustee and, if it is a Discretionary Testamentary Trust, the Trustee determines the amount of income, if any, allocated to each beneficiary. Possible Corporate Trustee in which case a beneficiary can be a Director and then guess what can happen?

OK. This is very interesting. So we know that rich people set up trusts for their kids who go off to college. Let's run with that cliche. They're not a Testamentary Trust. Possibly they are discretionary. There are companies that specialize in managing rich people's trusts. I'm assuming that they're prepared to carry out Daddy's instructions verbatim. Daddy is the Appointor, Professional Trustees Pty Ltd is the Trustee, and Geoffrey is the Beneficiary who receives the funds, but has no say in anything.

Can the same structure be used for a Testeamentary Trust? Can you not bequeath your assets to any human, but to a trust, have a restrictive trust deed that dictates your exact wishes, and then have it professionally managed?

It is also possible for a beneficiary to opt out of the Trust in which case they are able to access the capital and do with it what they want. Also a DTT has a limited span of 80 years from when it first comes into effect.

Interesting. Certainly a potentially beneficiary doesn't have to accept the proceeds of a will. But if they do, can they just dissolve the trust? That sounds odd to me. I agree with the limited lifespan of a trust. Still, 80 years is a good run

A vast subject and it will cost to get it right initially plus future costs as it will need to be reviewed as circumstances change, eg definition of children (IVF, surrogate, etc), blood line and so forth.

Costs are a big thing. Yes, unless you're leaving a signficant fortune, it may not be worth doing.