Best way to get 60k (after tax) income forever?

Looking at retirement figures once kids are 18+ and self sufficient think 60k would do my wife and I for a nice life with a small bit of travel and some sporadic part time work/business on the side for treats.

Currently we have a mortgage free forever home (3 bed, 2 bath) in Tauranga and 250k in KiwiSaver and non KiwiSaver funds. ItÂ’s 100% in Total World Fund. The aim is to sell off units in the fund 5k month/60k a year once we reach the 4% withdrawal $1.5 mill figure.

However this is a fair bit of time away. Wondering if there is a better option to allow greater than 4% withdrawal? Thinking commercial property funds and living off the dividends or similar with PIE status? Have built up most of our wealth in residential property rentals but have none currently sold them last year.

At the point that 'a fair bit of time away' becomes now then $60k will not be what it used to be.
You will need/want more ( and then more again ).

I am going to guess that under the hood that TWF is a wrapper around another fund. If so then you could possibly improve your returns by buying the underlying fund directly if you feel up to handling any extra tax forms etc.

Personally I would diverse into several different areas, overseas, domestic, NZ shares etc.

But it is up to you to do the research and decide what is right for you.

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Originally Posted by Snow Leopard

At the point that 'a fair bit of time away' becomes now then $60k will not be what it used to be.
You will need/want more ( and then more again ).

I am going to guess that under the hood that TWF is a wrapper around another fund. If so then you could possibly improve your returns by buying the underlying fund directly if you feel up to handling any extra tax forms etc.

Personally I would diverse into several different areas, overseas, domestic, NZ shares etc.

But it is up to you to do the research and decide what is right for you.

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Yes have factored in 60k with inflation.

TWF is through smartshares but invests in vanguards world fund. Smart shares add a 0.4% ish fee on top of vanguard

Yes thinking putting some of it into NZ based funds (active or passive) or creating my own NZ top 20 or NZ property “index fund” based on market cap and adjusting annually

60k for 2 people? That would worry me

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Originally Posted by dabsman

60k for 2 people? That would worry me

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Me too, but 60k, provided it's invested somewhere to provide regular increases for inflation, wouldn't be too bad if it's in addition to universal superannuation.
Of course if you're nearing meeting up with the grim reaper, you can nibble away at the capital. They used to say you should plan it so your last cheque bounces, but now that there's no cheques - you'd need to have your last AP declined .........

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Last edited by Snow Leopard; 01-07-2022 at 09:41 AM. Reason: Sure SBQ will be along in due course.

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:lol:

I don't think there's really a best way. Not without considering the level of 'risk' you would be willing to accept.

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Wondering if there is a better option to allow greater than 4% withdrawal? Thinking commercial property funds and living off the dividends or similar with PIE status? Have built up most of our wealth in residential property rentals but have none currently sold them last year.

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Since the 4% is tied to the performance of your portfolio, it would be best have consideration what asset class you put them in. For eg if you had them in tech stocks last year, your portfolio would be sitting at a hefty loss (-50% not unreasonable for many managed funds in this sector). That would mean, what to do when your investments have collapsed?

Each is to their own. To return more than 4% a year after tax is not really that difficult. Vanguard's VOO or VOOG would fit the bill if you take on a long term approach. You sell a portion of 4% of the shareholding as you wish (something you can't do when receiving dividends because what if 1 year you don't want to spend all the dividend payments? With electing to choose when to sell actual shares, you can choose the exact amount you desire on that moment of time). When a company issues dividends, you are at the mercy of the board of directors on when and how much they allocate. Of course places like in N. America, they offer Dividend Reinvestment Plans (DRIPS) but uncertain if the similar scheme is done here.

You could chase after interest bearing bonds or term deposits. But % vary from year after year and you have the risk of losing it all (ie Hanover Finance).

Personally, I like to gamble at a much higher level of risk through selling derivative options. I try to earn 1% return on the capital at risk PER WEEK. In fact let me post you some options plays that recently expired this past Friday:

13 Jul 22

UPST

22 Jul 22

21.5

PUT

0.56

-100

5,600

69.26

5,530.74

E

2.60%

The above translate to on, 13th July I wrote PUT contracts on the stock UPST, having a strike price of $21.50 and with an expiration date of 22nd July. The # of contracts I sold 100 (or 10,000 shares). So the total capital at risk would be $210,500. On the day I sold these PUTS, I was paid $5,600 less commission = $5,530.74 or 2.60% return over the 10 day period.

What does this mean? It means that on the closing of Friday 22nd, if UPST share price closed BELOW $21.50 - then automatic assignment by my broker will happen, forcing me to pay $210,500 to buy 10,000 shares of UPST. If UPST closed ABOVE $21.50, then the options expire worthless (which is the aim) and I do a clean sweep. UPST closed around $26.

I also played the long side to on UPST options by selling calls:

18 Jul 22

UPST

22 Jul 22

31.5

CALL

0.51

25

1,275

0

1,275.00

E

1.62%

On July 18th, I sold call contracts at a strike price of $31.50, which expired on 22nd July. A total of 25 contracts (or 2500 shares). For selling these contracts I collected $1,275 (no brokerage fee was charged for this transaction) or 1.62% for the mere 4 days these contracts were written for. If UPST closed above $31.50, I would be assigned to sell 2500 shares of UPST at $31.50. A closing price under $31.50 would mean the contracts expire worthless (what you want). Then clean sweep.

There's is a caveat. These trades are done outside of the NZ residency aspect and under a brokerage account in joint with my father. The general rule in NZ is the FMA (the NZ financial regulatory authority) states that overseas brokers that provide services in derivative options contracts to their clients and those clients reside in NZ, must be licensed by the FMA. Whether these major brokerage firms do or not comply with the FMA I do not know. However I do know many brokers such as TDAmeritade, Schwab, Goldman Sac, and dozen of others went on a spree to close foreign account holders some years ago.

Bear in mind that most financial analysts no longer believe in the 4% rule - the latest thinking is that it's less than 3% if you want to keep your capital safe.

At the point you retire you could consider dividend growth stocks or funds. Funds such as SCHD provide excellent long term dividend growth, albeit only at a current yield of around 3.8%. The real benefit of SCHD (apart from the growth component is their constant and reliable dividend increases. If you look on Digrin.com you'll see they're expected to be returning a yield on capital well over 8% by 2030 due to the increase in dividend. That's doubling your yield avery 8 years or less....
When you're in retirement, dividend growth is a huge benefit, ensuring that you'll be ahead of inflation, with an increase in income every year.

Once you reach retirement, you could make up a simple 3 or 4 fund portfolio with perhaps some JEPI or JEPQ for the higher income, together with a small amount of XLV and XLK for continued growth. Perhaps 40% SCHD 40% JEPI for income and a little growth, 10% each to XLV and XLK for growth, or even just VOO/VTI/VGT or your favourite growth index.

In the meantime, while you're concentrating on the accumulation stage of your investment journey, just concentrate on higher volatility growth holdings. I'm a big fan of both XLV and XLK - compare these with S&P500 (VOO). A 50/50 portfolio of these two returned a CAGR of almost 17% in the last 12 years, compared with less than 14% for VOO. Max drawdown is also slightly lower, although volatility is a little higher (which is ok at this stage for you).

Put these into portfoliovisualiser and have a play with the ratios to see what levels of income you can get at various different allocations. Depending on how you cut the portfolio, you could potentially withdraw 5% or even a little more for the first 3 or 4 years of retirement or so without eroding your capital, allowing you the extra for travelling and fun, then reduce to a more reasonable 3 - 4% when you reach the "sitting in front of the television" stage.

Even now, in the accumulation stage, it wouldn't hurt to have a small amount in SCHD or JEPI, maybe no more than 5% total between them - just to give you some understanding of income investing and dividend growth investing. Not financial advice blah blah, I shovel poo for a living.....