What's your retirement asset allocation percentages?

[Zaxon]

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.

You're right. I'm describing a rather benign aging process where the person is still cognatively alert. Aging may or may not go that way.

My aged parents live in their own home and have a cleaner, via a council scheme, come periodically. Apparently you can get people to do your lawns, people to shower you. I'm not sure whether you can get daily help through the council. I'd suspect not.

My fear is that Australia is well on the way to becoming the Ayn Rand state like the US, where the user pays for absolutely everything. I suspect that by the time I'm old, there will be no council services, medicare will be a husk, and if you want any aged assistance at all, then you'll pay full, commercial rates.

I see your point about the end of life being very messy, and a dedicated facility might best thing. Perhaps the best we can do is to stay in our homes as long as possible, pay for limited home help along the way, but have a aged care facility picked out ahead of time for when you really need it.

 

[Zaxon]

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.

It's nice to see someone actually carry out a fixed percentage model in practice. Do you have any equivalent of a smoothing fund? From memory, a lot of your investments are income producing anyway, so you mightn't be subject to that much volatility.

 

[sptrawler]

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!

Thanks for the explanation Zaxon, makes a lot more sense now.

 

[sptrawler]

You're right. I'm describing a rather benign aging process where the person is still cognatively alert. Aging may or may not go that way.

My aged parents live in their own home and have a cleaner, via a council scheme, come periodically. Apparently you can get people to do your lawns, people to shower you. I'm not sure whether you can get daily help through the council. I'd suspect not.

My fear is that Australia is well on the way to becoming the Ayn Rand state like the US, where the user pays for absolutely everything. I suspect that by the time I'm old, there will be no council services, medicare will be a husk, and if you want any aged assistance at all, then you'll pay full, commercial rates.

I see your point about the end of life being very messy, and a dedicated facility might best thing. Perhaps the best we can do is to stay in our homes as long as possible, pay for limited home help along the way, but have a aged care facility picked out ahead of time for when you really need it.

As the population increases and the industrialisation decreases, the slide to a lower living standard will continue and the benefits of a welfare state will be harder to fund.
It is imperative the productivity increases, or the decline will accelerate.IMO
By the way Zaxon thanks for your lively contributions, it adds a lot of zest to the debate.

 

[Sir Burr]

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.

Interesting! Is there any studies about this method?

Been reading about the Boglehead Variable Percent Withdrawal. Leaves you with no capital at the end which is fine by me but realistically who knows what will happen as being discussed here. My Mum spent her last years in a Nursing Home too. Mentally she was fine but many others there not so. I think people should spend some time in one of these places, another world and an eye opener.

 

[Bill M]

You're right. I'm describing a rather benign aging process where the person is still cognatively alert. Aging may or may not go that way.

My aged parents live in their own home and have a cleaner, via a council scheme, come periodically. Apparently you can get people to do your lawns, people to shower you. I'm not sure whether you can get daily help through the council. I'd suspect not.

My fear is that Australia is well on the way to becoming the Ayn Rand state like the US, where the user pays for absolutely everything. I suspect that by the time I'm old, there will be no council services, medicare will be a husk, and if you want any aged assistance at all, then you'll pay full, commercial rates.

I see your point about the end of life being very messy, and a dedicated facility might best thing. Perhaps the best we can do is to stay in our homes as long as possible, pay for limited home help along the way, but have a aged care facility picked out ahead of time for when you really need it.

My Mother did all of the above. We had health care workers/cleaners coming in twice a week but things break down all the time. The staff get sick or get injured on the job or take holidays and sometimes there isn't anyone available to come by and help. So then Mum had to struggle to even have a shower. There were some government funded initiatives to help stay in your home longer but it wasn't enough. All family were interstate and she did not want to move out of her home. We were all married and could only come now and again.

In the end she saw it for herself that it was impossible to stay on in her home and she made the decision to go. So we sold up the house and she went into a very lovely, well run private Aged Care Facility. The fee to get in was $500,000. For this she got a studio room on her own, I liked it and loved coming to visit Mum. The 500K (probably a lot more now) is a RAD (refundable accommodation deposit). This fee reduces the amount per week you have to pay for their services. Yes they took 85% of her pension but the RAD was still not enough to cover the service fee. Instead of the full $1,200 p/w cost she was up for around an extra $200 a Month. So her fees were a 500k RAD (with no interest) 85% of her pension plus $200 P/M of her own savings. It was manageable. This was the best and cheapest course of action we could do for Mum. We were happy that she lived in a nice place. Sorry for rambling but old age gets very expensive. If you have no money and no family then you will end up in a facility that is not so nice and sharing a room with other residents.

 

[Bill M]

It's nice to see someone actually carry out a fixed percentage model in practice. Do you have any equivalent of a smoothing fund? From memory, a lot of your investments are income producing anyway, so you mightn't be subject to that much volatility.

Yes we do, I got bitten very hard during the GFC. It was a life changing event for us and I have never forgot. I have got a large cash buffer should another 50% drop come along. It all sounds good and well having ETF's and LIC's or other individual stocks as long term investments but can you survive a 50% drop in capital? This is what all long term investors need to understand and this is what financial advisers should ask each investor. If there is even the slightest murmur or confused look on the investors face then it needs to be explained. They need to know this can happen. A lot of Mum and Dad non professional investors can not envisage a 50% drop in capital. Yep sit it out, ride it out is one option but can they? Are they disciplined or not?

Lets never forget, if an ordinary investor filled up their Super account with Australian share market ETF's in October 2007, they would STILL be suffering capital losses. We still have not passed the previous highs of 2007, that's 12 long years already. Sure they would have picked up 5 to 7% dividends along the way but no capital growth. A lot of older retirees can not "just go back to work". It is the end of work for many of them and their investment decisions should focus on these points. Some people can not wait out 10, 12 or 15 years to recoup their losses.

 

[Zaxon]

Interesting! Is there any studies about this method?

Here's an article I google at random: https://www.brandonrenfro.com/can-i-withdraw-a-fixed-percentage-of-my-portfolio-in-retirement/

I have read studies in the past. Though there's not the deluge of material like there is for the 4% Rule. That's mostly likely because the 4% Rule needs a lot of proof, since the average retiree couldn't possibly, independently prove it works. We need back testing and academics to do that.

A fixed % drawdown is somewhat more intuitive. A variation on this has been used by retirees for centuries. Holding dividend paying stocks, owning tenanted properties, having fixed income assets etc: these are all examples of only drawing down the money that you "earn". A fixed % AUM is a direct extension of that type of thinking.

Been reading about the Boglehead Variable Percent Withdrawal. Leaves you with no capital at the end which is fine by me but realistically who knows what will happen as being discussed here.

I'm also in favour of drawing down to zero. I'll use the method I outlined above, but once we're significantly older, we will ramp up the % drawdowns.

The government has a nice little chart for this they use for super:



I don't know whether this is "best practice", and so you can simply follow that chart, or whether this is the goverment trying to get out of paying as much pension. I'd be interested to hear whether people think this chart is reasonable or not as something to follow. I notice they use the 5% at 65+ (same as me). And these percentages are of AUM, no 4% + CPI here.

 

[Zaxon]

My Mother did all of the above. We had health care workers/cleaners coming in twice a week but things break down all the time. All family were interstate and she did not want to move out of her home.

Interesting details there. My parents moved across the state to live in the same town as their oldest son. It's worked out really well, and now they're over 80, they have someone that can help them out with all sorts of things.

We have no kids, so our end-of-life will look nothing like that. Still, in theory, the money you save by not having kids, you should put away for aged care

In the end she saw it for herself that it was impossible to stay on in her home and she made the decision to go. So we sold up the house and she went into a very lovely, well run private Aged Care Facility. The fee to get in was $500,000.

OK. So the key is to own your own home, and sell it to fund your move into aged care. How much of that 500k was left at the end? Or does the facilitity get to keep it all?

 

[Sir Burr]

Here's an article I google at random: https://www.brandonrenfro.com/can-i-withdraw-a-fixed-percentage-of-my-portfolio-in-retirement/

I have read studies in the past. Though there's not the deluge of material like there is for the 4% Rule. That's mostly likely because the 4% Rule needs a lot of proof, since the average retiree couldn't possibly, independently prove it works. We need back testing and academics to do that.

Yes I googled your idea too and ended up setting up a spreadsheet using historical AORD from 1/1/07 thru today (plus nominal amount for interest on bond/cash account) and was surprised how well it did through GFC. Worst case was 82K income but I didn't include dividends. The idea of the MA of 5% (I used 12 a month MA) and drawing or adding to the bond/cash allocation makes sense.

Edit: By the way, these % withdrawal amounts to me are a max. I can see myself pulling less as I'll be using geographical arbitrage too where "most" costs are lower than Oz. Problem with this is exchange rates - retirement gets complicated!

 

[Zaxon]

It all sounds good and well having ETF's and LIC's or other individual stocks as long term investments but can you survive a 50% drop in capital?

That is absolutely the right question to be asking. It comes down to how much you start with. If you go in "fat", then a 50% drop means you don't go on a cruise that year, or you delay buying that new car for a bit. If you retire "lean", then a 50% drop means you eat rice and beans until the market recovers. Two very different outcomes. I'm not close enough to retirement to predict which way I'll end up

Lets never forget, if an ordinary investor filled up their Super account with Australian share market ETF's in October 2007, they would STILL be suffering capital losses. A lot of older retirees can not "just go back to work". It is the end of work for many of them and their investment decisions should focus on these points. Some people can not wait out 10, 12 or 15 years to recoup their losses.

Oh for the days of the Defined Benefit company pensions. Modern generations have been thrown into so much uncertainty with Define Contribution, let's "see what happens with the market", plans.

I see the older workers at Bunnings. And good on Bunnings for hiring them. And when I previously rented, the guy they sent around for repairs looked about 80, and he had been forced back into work. But as you say, that's highly undesireable or even impossible for many people.

 

[Bill M]

OK. So the key is to own your own home, and sell it to fund your move into aged care. How much of that 500k was left at the end? Or does the facilitity get to keep it all?

It is called a "Refundable Accommodation Deposit". It has to be paid back in full upon departure from the Aged Care Facility or death. If there are any outstanding bills then they will reduce that amount to cover those bills. They get to use this money interest free and only the capital is refundable. These deposits are government guaranteed to be paid back.

 

[Zaxon]

Yes I googled your idea too and ended up setting up a spreadsheet using historical AORD from 1/1/07 thru today (plus nominal amount for interest on bond/cash account) and was surprised how well it did through GFC. Worst case was 82K income but I didn't include dividends. The idea of the MA of 5% (I used 12 a month MA) and drawing or adding to the bond/cash allocation makes sense.

Good work! Although I personally never chase dividends, if you look at VAS (ASX 300), it has a dividend off 4.15%. So there's a lot of your 5% already.

My moving average for smoothing might be calculated on, say, 10 years. You're after a point where your additions to your bond smoothing fund balances out your withdrawals. So you're measuring over a complete market "cycle".

Edit: By the way, these % withdrawal amounts to me are a max. I can see myself pulling less as I'll be using geographical arbitrage too where "most" costs are lower than Oz. Problem with this is exchange rates - retirement gets complicated!

Yes, the 5% is an arbitrary amount. Some may go lower, for sure. Some may prefer a much larger smoothing fund than 10%. It's all a performance vs smoothness continuum.

So where are you retiring to? Geographical arbitrage is very smart. For those who already have a foreign connection, it can be a no brainer. My only concern, personally, would be for medical costs. While we have a reasonable Medicare system here and good quality hospitals, you'd need to factor that in for your new country. The other consideration is whether the country of your choice will allow you to move there on a permanent basis.

 

[Zaxon]

It is called a "Refundable Accommodation Deposit". It has to be paid back in full upon departure from the Aged Care Facility or death. If there are any outstanding bills then they will reduce that amount to cover those bills. They get to use this money interest free and only the capital is refundable. These deposits are government guaranteed to be paid back.

For the huge saving in monthly fees, that sounds excellent. I can imagine you'd have to scrutinize the fine print of the place you're going. There's possibly rogue homes that would tack on fees that would magically eat it all up, I can imagine.

 

[sptrawler]

Yes we do, I got bitten very hard during the GFC. It was a life changing event for us and I have never forgot. I have got a large cash buffer should another 50% drop come along. It all sounds good and well having ETF's and LIC's or other individual stocks as long term investments but can you survive a 50% drop in capital? This is what all long term investors need to understand and this is what financial advisers should ask each investor. If there is even the slightest murmur or confused look on the investors face then it needs to be explained. They need to know this can happen. A lot of Mum and Dad non professional investors can not envisage a 50% drop in capital. Yep sit it out, ride it out is one option but can they? Are they disciplined or not?

Lets never forget, if an ordinary investor filled up their Super account with Australian share market ETF's in October 2007, they would STILL be suffering capital losses. We still have not passed the previous highs of 2007, that's 12 long years already. Sure they would have picked up 5 to 7% dividends along the way but no capital growth. A lot of older retirees can not "just go back to work". It is the end of work for many of them and their investment decisions should focus on these points. Some people can not wait out 10, 12 or 15 years to recoup their losses.

That Bill, is what is called experience, most dont appreciate it, untill they experience it.
I know exactly what you are talking about and have 6 to 7 years of cash available on minimum draw down.
Many would say that is crazy, but when you have experienced what you are talking about, you err on the side of caution. Unfortunately.

 

[Zaxon]

I know exactly what you are talking about and have 6 to 7 years of cash available on minimum draw down.
Many would say that is crazy, but when you have experienced what you are talking about, you err on the side of caution. Unfortunately.

Although by nature I'm a returns focused investor, and can totally appreciate wanting to make yourself really secure. The market can and will go through extended down periods. And knowing the market, on average, performs really well probably is of no comfort when you've had a 50% crash and you still haven't fully recover 10 years later.

My partner would keep 100% of our investments in a bank account, and thinks the market is just this massive slot machine. So that's the other extreme point of view.

 

[sptrawler]

Although by nature I'm a returns focused investor, and can totally appreciate wanting to make yourself really secure. The market can and will go through extended down periods. And knowing the market, on average, performs really well probably is of no comfort when you've had a 50% crash and you still haven't fully recover 10 years later.

My partner would keep 100% of our investments in a bank account, and thinks the market is just this massive slot machine. So that's the other extreme point of view.

Not only can you lose 50% of your capital, as was shown last election, you can lose 30% of your income.
The really scary part was, many were cheering it on.
Take nothing for granted, as per my motto.lol
It is just as easy to cancel the CGT exemption, as the tax free exemption on franking credits, on super earnings.lol
Actually after the last election, super is starting to look like a pool of money, that the politicians can raid later, if required.

 

[Zaxon]

you can lose 30% of your income.
The really scary part was, many were cheering it on.
Take nothing for granted, as per my motto.lol
It is just as easy to cancel the CGT exemption, as the tax free exemption on franking credits, on super earnings.lol

They are excellent points! If all that legislation got through, entire assumptions about how your retirement would play out, would have been severely under threat.

Actually after the last election, super is starting to look like a pool of money, that the politicians can raid later, if required.

Totally. These are my predictions about super. By the time I'm ready to retire, pension age will be 70 (up from 67). That's virtually stated policy anyway, so that seems likely. Secondly, having access to your super at 60, giving some people the chance to spend it all, only to be fully reliant on the pension later on, seems to be a "loophole" the goverment will stamp out. So, access to super would also be raised to 70.

I'm not suggesting that any of these things have merit. Just that the government is highly motivated to reduce their pension bill, no matter what the social cost.

 

[Belli]

Yep. Super is an odd beast. Base an income on something which changes in price from minute to minute let alone year to year.

Always considered it a back up to have investments outside of super. Sure the capital value can go down but generally the income from dividends don't so much. If I remember correctly there was a 50% drop on the CG but dividends from the LICs I held, and still do, were affected by way, way less; something of the order of 10%. No great income impact for us really. The one and only ETF I held (STW) did have a comparatively massive drop in distributions but when I looked at it later on the distributions during the previous 4 or 5 years were abnormally high with companies shuffling out lots of dividend payments.

I thought the 2008 period was a great time and filling my boots as much as I could with stuff which I considered were at bargain prices. Working at the time so was also moving cash in to the SMSF to buy as much as we could in it.

As usual, one person's approach and attitude is different to another's. Met a few who skedaddled from the share market and still are so fearful they have been in cash since then. When I've met them in recent times they are not too happy and are struggling a bit. I do feel for them to some degree but they made a choice so they have to deal with it I guess.

 

[Belli]

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

True but I took the view it wasn't about me. I won't be here so it was all about doing the best for those I care about. For that, I didn't consider the cost exorbitant.