How much capital do I need to retire comfortably on ?

[Beagle]

Just thought it might be a good idea to float this as a subject seeing as that's the reason many of us invest !!

I am sure many of us readily recall that famous line from the movie Wall Street when Bud Fox asked Gordon Geeko, How much is enough Gordon, How many Yachts can you waterski behind ?

So how much is enough ?

First up its clear everyone will have different idea's and different goals and aspirations regarding their lifestyle in retirement.
Secondly everyone will have different perspectives on when they want to retire and will have varying idea's about their likely lifespan when they retire.
Others will continue to enjoy working part time in their career or their business even after retirement.

There's also the open question of whether the Government will have sufficient funds to keep paying the superannuation when the huge tidal wave of baby boomers retire.
Will they bring back some sort of National Superannuation surtax like in the old days or is this such a huge political hot potato no party would dare take a position that would offend the grey tsunami ?
Will there be some sort of wealth or inheritance tax in the future ?

So how does one go about some sort of logical reasoning in terms of retirement planning ?

Lots of questions and I'd love to know others plans but for what its worth here's a starting point for consideration.

If one were to take the viewpoint that they'll work on until they're say 70 (at least part time) then how much capital should one have to live comfortably, (talking today's dollars) ?

Does one take the view that $1m should cut the mustard and with a well diversified portfolio of stocks and bonds earning an average return after tax of 7% should be possible, $70,000 per annum.
Add in national superannuation and some part time work or rent from a rental property or two and assuming your mortgage free on your house then all should be good right ?

Thoughts ?

[percy]

Most of us here are investors.
To start investing you first of all need to live within your means.
Only then can you start to invest,spare cash.
I do not think it makes a great deal of difference whether you invest in property,shares,art or whatever,so long as your do your research and are not greedy.
Therefore I think most of us on sharetrader will make sure we can live on our retirement income,whatever it turns out to be.
On the other hand, there a great number of people who can not live within their means.These people reach retirement age with either no house,or a house with a large mortgage.They can not afford to give up work.Life then becomes very hard for them.
So back to how much money do you need to retire on.Depending on where you live,your lifestyle,and health I would say someone living in the South Island with modest requirements could safely retire with a free hold house worth $350,000 and about $300,000 invested returning 5%.For a couple that would be $15,000 from investments plus super of approx. $25,000.
Move to Christchurch your house would most probably be approx. $500,000 and your investments would need to be worth approx. $600,000.
Move to Auckland,your house would most probably be worth $1,200,000 and you would need investments worth close to $2mil.
I am 66 and am still working.This has a huge influence on where you are.My work is the same as having approx. an extra $800,000 invested.I still love my work.

[fungus pudding]

Most of us here are investors.
To start investing you first of all need to live within your means.
Only then can you start to invest,spare cash.
I do not think it makes a great deal of difference whether you invest in property,shares,art or whatever,so long as your do your research and are not greedy.
Therefore I think most of us on sharetrader will make sure we can live on our retirement income,whatever it turns out to be.
On the other hand, there a great number of people who can not live within their means.These people reach retirement age with either no house,or a house with a large mortgage.They can not afford to give up work.Life then becomes very hard for them.
So back to how much money do you need to retire on.Depending on where you live,your lifestyle,and health I would say someone living in the South Island with modest requirements could safely retire with a free hold house worth $350,000

Every now and then my pedantic nature takes over. So may I say almost all South Island houses are freehold. The term 'freehold' refers to tenure and essentially means the title is fee simple, or not leasehold. It's common street-talk for a property owned with no morgage, but it's incorrect and has no place in an investment forum. The correct term for a property not held under a mortgage is unencumbered, or simply mortgage-free. The majority of NZ homes are freehold, but are mortgaged.

[dingoNZ]

Most of us here are investors.
To start investing you first of all need to live within your means.
Only then can you start to invest,spare cash.
I do not think it makes a great deal of difference whether you invest in property,shares,art or whatever,so long as your do your research and are not greedy.
Therefore I think most of us on sharetrader will make sure we can live on our retirement income,whatever it turns out to be.
On the other hand, there a great number of people who can not live within their means.These people reach retirement age with either no house,or a house with a large mortgage.They can not afford to give up work.Life then becomes very hard for them.
So back to how much money do you need to retire on.Depending on where you live,your lifestyle,and health I would say someone living in the South Island with modest requirements could safely retire with a free hold house worth $350,000 and about $300,000 invested returning 5%.For a couple that would be $15,000 from investments plus super of approx. $25,000.
Move to Christchurch your house would most probably be approx. $500,000 and your investments would need to be worth approx. $600,000.
Move to Auckland,your house would most probably be worth $1,200,000 and you would need investments worth close to $2mil.
I am 66 and am still working.This has a huge influence on where you are.My work is the same as having approx. an extra $800,000 invested.I still love my work.

Agree with everything in this post, well written, Percy

[Aaron]

Income Required for Financial Freedom

Before Tax After Tax @33%
$70,000 $52,632


Capital Required at different rates of return
Yield% Capital Difference 1%


1% $7,000,000
2% $3,500,000 $3,500,000
3% $2,333,333 $1,166,667
4% $1,750,000 $583,333
5% $1,400,000 $350,000
6% $1,166,667 $233,333
7% $1,000,000 $166,667
8% $875,000 $125,000
9% $777,778 $97,222
10% $700,000 $77,778
11% $636,364 $63,636
12% $583,333 $53,030
13% $538,462 $44,872
14% $500,000 $38,462
15% $466,667 $33,333
16% $437,500 $29,167
17% $411,765 $25,735
18% $388,889 $22,876
19% $368,421 $20,468
20% $350,000 $18,421


Cutting and pasting from Excel creates presentation problems but I divide the $70k income by the interest rate to arrive at the required capital value. The last column shows the difference 1% improvement in yield makes in capital requirements. It highlights how important getting in excessive of 7% is. Even the difference in 4% to 5% is a jump.
In the current low interest rate environment of 3%-4% you will need over $2mill by my rough calculations. Hope I can pick up some 20% returns from somewhere. Based on past performance I will need to look after my health as I will need to be working well into retirement.

[Biscuit]

Income Required for Financial Freedom

Before Tax After Tax @33%
$70,000 $52,632

You also need capital appreciation to keep up with inflation. Otherwise, if you live for 30 years after retirement, your $70K won't go far at the end.

[Aaron]

You also need capital appreciation to keep up with inflation. Otherwise, if you live for 30 years after retirement, your $70K won't go far at the end.

That is even more depressing then. What if we have deflation instead. I have looked at my savings, compounding returns etc and it would be a dream to be financially free for me. If opportunities arise I can amplify my returns with debt but debt has its own risks.

Maybe debt isn't so risky in this new age of modern finance. I read that Germany was criticised for "a fixation that money should always be repaid". I guess in these days of high finance my thinking and Germanys thinking is old fashioned. If it is my money I am lending I funnily enough expect it to be repaid, with interest. How insane is the world of finance/debt/currency getting. Common sense says that if you lend money you expect to have it repaid. Unless I suppose you work for a bank and it is someone else's money then it might not be such a problem.
But more seriously though, this website has been reported for phishing threats. Did anyone else get this message when logging in.

[Beagle]

The Mr Money Mustache blog goes into this question in great detail - http://www.mrmoneymustache.com/2012/...or-retirement/

To summarise, its about 25 times the amount you spend to live comfortably, assuming a 4% withdrawal rate over time. The lower your consumer spending, the more you can save, the earlier you can retire. So if you can live on $40k per year then you need $1 mil.

Thanks KW and I'll enjoy having a good look through that ASAP. We have one of the highest yielding markets in the world whereas on the other hand a typical dividend yield on an American share might only be 2%. Do you think that's a material factor for N.Z. retirees ?

Most of us here are investors.
To start investing you first of all need to live within your means.
Only then can you start to invest,spare cash.
I do not think it makes a great deal of difference whether you invest in property,shares,art or whatever,so long as your do your research and are not greedy.
Therefore I think most of us on sharetrader will make sure we can live on our retirement income,whatever it turns out to be.
On the other hand, there a great number of people who can not live within their means.These people reach retirement age with either no house,or a house with a large mortgage.They can not afford to give up work.Life then becomes very hard for them.
So back to how much money do you need to retire on.Depending on where you live,your lifestyle,and health I would say someone living in the South Island with modest requirements could safely retire with a free hold house worth $350,000 and about $300,000 invested returning 5%.For a couple that would be $15,000 from investments plus super of approx. $25,000.
Move to Christchurch your house would most probably be approx. $500,000 and your investments would need to be worth approx. $600,000.
Move to Auckland,your house would most probably be worth $1,200,000 and you would need investments worth close to $2mil.
I am 66 and am still working.This has a huge influence on where you are.My work is the same as having approx. an extra $800,000 invested.I still love my work.

I think there will be a growing trend of retiring folk in Auckland cashing up their homes and moving to the provinces, (crossed my mind already but I'd get bored retiring early).
Can you please explain your thinking on why someone needs more invested capital to retire on in a major city ? Clearly their rates and insurance would be higher than in the provinces but all other costs about the same wouldn't you say ?

[percy]

Thanks KW and I'll enjoy having a good look through that ASAP. We have one of the highest yielding markets in the world whereas on the other hand a typical dividend yield on an American share might only be 2%. Do you think that's a material factor for N.Z. retirees ?

I think there will be a growing trend of retiring folk in Auckland cashing up their homes and moving to the provinces, (crossed my mind already but I'd get bored retiring early).
Can you please explain your thinking on why someone needs more invested capital to retire on in a major city ? Clearly their rates and insurance would be higher than in the provinces but all other costs about the same wouldn't you say ?

Yes mainly rates and insurance.A property worth $150,000 less ,would mean $150,000 more for investment.

[axe]

Born in '85.

I do not expect that superannuation will exist or be a meaningful contribution by the time I get to retirement age.
Most stocks in my portfolio now are intended to be held until I retire and beyond.