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  1. #291
    The past is practise. Vaygor1's Avatar
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    Quote Originally Posted by Roger View Post
    Let me be the first on here to congratulate you mate on doing so well in life that you can afford to retire at 48 and I know you're a very bright chap so I'm sure you will find plenty of ongoing things to keep yourself challenged. Looking forward to seeing you again at our forthcoming Auckland ST get-together, (date to be decided hopefully late February sometime).
    Thanks Roger. Not normal for me to divulge too much of my personal situation but it led on from describing my requirement of not including super. Happy to offer some of my views if anyone is interested. I will be posting a few snippets of info and conclusions that helped me in my analysis re retirement . Unlike the 4% rule, I used a sustainable capital base model that inflation adjusts itself along with the after-tax dividends it is likely to comfortably deliver. Under this model, the length of time one lives becomes pretty much irrelevant as the capital base is deemed to keep up with inflation.

    I haven't read back in this thread too far but some (or a lot) of it may already have been discussed at length, but there are new members all the time who may wish to discuss/debate the topic. Skimming over the last 30 odd posts on this thread means I don't think any conclusions drawn will be much different from those in the past. Possibly just another way of looking at it.

    I would very much look forward to the next ST meeting in Auckland. I'm back up in Northland now so only a few hours away from the big smoke. Can we set a date as soon as so all potential participants (including myself) can organise their calendars around it? Those from afar might be able to pick up some cheap flights with enough notice. Hopefully KW, Percy, Forest, Crackity, Noodles, and Blendy can make it again. I can even give SparkyTheClown and Moosie a call and see if they're keen.

    How does 4th March sound?
    Last edited by Vaygor1; 15-01-2017 at 07:08 AM.

  2. #292
    The past is practise. Vaygor1's Avatar
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    Default What rate of inflation would you choose?

    Late last year Aaron provided a link to a useful NZ inflation chart. Here it is, plus an extra one.

    Attachment 8598

    Attachment 8599

    So if you were going to choose an average compounding rate of annual inflation over the rest of your life that you would want/need your capital base at retirement to go up by each year so it wouldn't erode no matter how long you lived, what would it be?

    Assume you are incapacitated so there is no chance of working to supplement the income this capital base can annually generate.
    Assume there is zero chance of any inheritance.
    Assume you never go to the casino or buy lotto.
    Assume you own a freehold dwelling and keep it until you impersonate a frog, and croak.

    For a realistic forecast, I would use an average of 3.5% per annum. Adding in a prudent amount of conservatism, use 4.33%. If you want belts and braces, use 5%.

    At first glance this may seem a tad on the low side for prudent planning for a forecast period of say 40 years, but the NZ General CPI is the all-up result calculated from 5 individual consumer price indices which are Housing, Wages, Food, Clothing, and Transport. Using the official figures over the last 40 years, the averages look like this:

    CATEGORY COMPOUNDING
    AVERAGE
    ANNUAL RATE
    Q1 1977 - Q3 2016
    CPI - General 5.2%
    Food 5.1%
    Clothing 3.6%
    Wages 5.8%
    Transport 4.3%
    Housing 8.1%
    Source: http://www.rbnz.govt.nz/monetary-pol...ion-calculator

    The idea of retirement should include the option of not working, and the assumptions mentioned above include already owning a freehold dwelling, so Wages and Housing (the two components with the highest average annual compounding rates) can be removed. I don't know the weightings of each of the 5 above elements in calculating the General CPI but my instinct tells me Housing and Wages would have the heaviest weightings of the 5 if in fact they are weighted at all.

    Further to this, the 40 year period from 1977 to today includes some of the highest inflation in New Zealand's history and excludes the lowest.

    Screen Shot 2017-01-15 at 1.39.08 AM.jpg


    Anyone with an alternative preference to mine in blue above?
    Last edited by Vaygor1; 15-01-2017 at 09:39 AM. Reason: Misc

  3. #293
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    What I have learnt at the age of 47 about this topic:

    1. I wasted too much energy on this subject.
    2. Tried semi retirement when I was a lot younger and found it boring, or in essence I had not planned the rest of my life well enough for it. You do have to plan you non monetary life well before the due date.
    3. Believe any required ROR on investment in my retirement years will be way different than my current life experience with world events likely to be game changes in my retirement life. So assume it was safe to build an amount with no expectation of real return, aim for 25% more than you expect to need, worse case as a consequence.
    4. Expect inflation to be a lot higher than 3.5% as world demand and population increase will demand it for key resources.
    5. If you want to travel in later years aim to do it before you are 70, on stats you ability to do it after this age really drops. Although if you want quality of life, private health care and operations for degeneration will increase. Expect 3-4 ops each, around 15-20k in today dollar terms.
    6. If you live a high lifestyle do not think it will easy to change however chances are you interest in travel etc. will drop off after the age of 70..still need the money for health care instead based on stats.
    7. I believe that takes me to 2-3 million dollars of liquid investments at age 65. A home freehold.
    8. If you can secure part time work or develop a business then the amount saved can be greatly reduced if you continue in these from age 65-70 or longer...
    9. I developed three business which do not require my effort, if I wish and provide a solid return..that simply is my best retirement plan. I now do not given this subject much time or energy. Lucky me!

  4. #294
    The past is practise. Vaygor1's Avatar
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    Quote Originally Posted by Raz View Post
    ..... 4. Expect inflation to be a lot higher than 3.5% as world demand and population increase will demand it for key resources.
    You may be right Raz, yet inflation may also stay below 3.5% (and even lower than it is now) for the short to medium term. From below you will see I use 4.33% as a prudent average over a 40 or 50 year period. What percentage would be your preference? .. no rights or wrongs here, just interested in your view.


    Quote Originally Posted by Raz View Post
    .... 9. I developed three business which do not require my effort, if I wish and provide a solid return..that simply is my best retirement plan. ...
    If you look at retirement as not just staying at home pottering around day after day with the odd fill-in trip, but instead as...
    * In a position to choose whatever you want to do with your own time
    * Not being married to a business you may own or jointly own with other parties.
    * Not having to answer to anybody work-related if you don't what to without repercussion (and that includes customers, colleagues, and management).
    * Having a sufficient passive income to enable the 3 points above

    ...Then your statement 9 sounds like you might be already there.

    If you could capitalise your share in these 3 businesses, what after-tax annual percentage return on that capital (ie as an after-tax dividend to you) do you think they will generate (without your involvement) on average over the long haul? Not an easy number to arrive at, but a pretty important one (as is the inflation figure) as it will have a significant bearing on your cashflow throughout your retirement however you wish to define it.
    Last edited by Vaygor1; 15-01-2017 at 08:22 AM.

  5. #295
    percy
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    I have just turned 68.
    I am self employed selling books to school libraries.I still love my work.Looking to either slow down, or give it away this year,depending on how my back stands up to it.Lifting and long periods driving are not good for it.
    My sharemarket investments have been a lot more profitable the past 4 years.Seems selling books is not very profitable.lol.
    When I was in my early 50s all my friends talked about retirement.None need to work,but are continuing to work.About 70 seems to be the age they decide to work a lot less hours,or to stop working.
    Working beyond 65 seems to make a huge difference to your capital.
    I will never again sit on an aeroplane for more than three hours,or get a connecting flight,so get my travel excitement watching Rick Steves travel videos.!!.I did travel the world in my early 20s.Still hate airports,ques, and crowds.
    We have ended up with more capital than we require,as we live very modestly.
    This has enabled us to pay off one daughter's mortgage the year before last,while we will pay off the other daughters mortgage in a few weeks time.
    I have been very lucky to enjoy what I do.Living within our means, and investing what we have saved has worked for us.
    Last edited by percy; 15-01-2017 at 08:28 AM.

  6. #296
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    Quote Originally Posted by Vaygor1 View Post
    My last post was an attempt to get me back to playing White (where I started) , but I'll stick with Black and see how we go... I'd respond with a dxe4.

    Best move this to another thread or PM if we are to continue....
    0-1 White resigns
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  7. #297
    ShareTrader Legend Beagle's Avatar
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    In the 1990's inflation averaged 2.4%. Since 2000 inflation has averaged 2.7%. The Reserve Bank is mandated to keep inflation between 1-3% therefore in my opinion going forward a reasonably safe assumption regarding inflation is an average of the rate over the last 25 years = 2.5%

    Thanks for your helpful post Vaygor1. 4 March works fine for me.
    Last edited by Beagle; 16-01-2017 at 07:54 AM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  8. #298
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    Quote Originally Posted by Roger View Post
    In the 1990's inflation averaged 2.4%. Since 2000 inflation has averaged 2.7%. The Reserve Bank is mandated to keep inflation between 1-3% therefore in my opinion going forward a reasonably safe assumption regarding inflation is an average of the rate over the last 25 years = 2.5%

    Thanks for your helpful post Vaygor1. 4 March works fine for me.
    Right because the world and economics never changes hmmm

  9. #299
    ShareTrader Legend Beagle's Avatar
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    Quote Originally Posted by Raz View Post
    Right because the world and economics never changes hmmm
    Good evening Raz,

    I note your point 4 above and Vaygor1's viewpoint regarding inflation. While I have some sympathy for your point of view, to be fair some people have been claiming, (by way of example) we're at or very close to approaching peak oil for a very long time now. My view is tempered by the fact that we're blessed to be living in N.Z. with abundant water and food and with ~ 80% of our electricity coming from renewable resources, (electric cars will be a feature of our future at some stage), and I note inflation has been well under 2.5% for many years now. If inflation is a bit higher than that does it really matter ? Rental property income should increase with inflation, shares should go up at the very least in line with inflation and in theory interest rates will be higher. Further, a bit more inflation could be a real blessing to anyone selling down rental properties later in life or downsizing their home.

    Regarding your point 1 above in post #294, I think a lot of people spend too much time worrying about inflation eroding their retirement savings when the net effects on a well balanced retirement portfolio over the average person's time in retirement are probably fairly inconsequential for anyone other than perhaps their kids and then perhaps only to a modest degree.

    What I'm seeing as a far bigger issue for retiree's right now is the impact of ultra low inflation and interest rates. Mr and Mrs Joe average who retired with nothing but their debt free home and a few hundred thousand dollars a few years back were planning on hoping to get ~ 6% on their money at the bank and having a modest amount of income with which to top up their national super are now struggling to get anything meaningful in addition to their superannuation and are really feeling the effects of low bank deposit rates and have little alternative but to cut back on any discretionary expenditure or eat into the capital value of their retirement savings. Some are being forced out of Auckland to trade down to a cheaper area and moving hundreds of miles from their friends and family, (ouch !).
    Last edited by Beagle; 16-01-2017 at 07:27 PM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  10. #300
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    Quote Originally Posted by Roger View Post
    Good evening Raz,

    I note your point 4 above and Vaygor1's viewpoint regarding inflation. While I have some sympathy for your point of view, to be fair some people have been claiming, (by way of example) we're at or very close to approaching peak oil for a very long time now. My view is tempered by the fact that we're blessed to be living in N.Z. with abundant water and food and with ~ 80% of our electricity coming from renewable resources, (electric cars will be a feature of our future at some stage), and I note inflation has been well under 2.5% for many years now. If inflation is a bit higher than that does it really matter ? Rental property income should increase with inflation, shares should go up at the very least in line with inflation and in theory interest rates will be higher. Further, a bit more inflation could be a real blessing to anyone selling down rental properties later in life or downsizing their home.

    Regarding your point 1 above in post #294, I think a lot of people spend too much time worrying about inflation eroding their retirement savings when the net effects on a well balanced retirement portfolio over the average person's time in retirement are probably fairly inconsequential for anyone other than perhaps their kids and then perhaps only to a modest degree.

    What I'm seeing as a far bigger issue for retiree's right now is the impact of ultra low inflation and interest rates. Mr and Mrs Joe average who retired with nothing but their debt free home and a few hundred thousand dollars a few years back were planning on hoping to get ~ 6% on their money at the bank and having a modest amount of income with which to top up their national super are now struggling to get anything meaningful in addition to their superannuation and are really feeling the effects of low bank deposit rates and have little alternative but to cut back on any discretionary expenditure or eat into the capital value of their retirement savings. Some are being forced out of Auckland to trade down to a cheaper area and moving hundreds of miles from their friends and family, (ouch !).
    Genetics wise.. I can expect to live for another fifty years, how about yourself Rodger? A lot can happen over that time. Your last paragraph emphasis the point... economics and the financial system has changed in the matter of ten years. The group you mention also are facing a growing issue with inflation for essential expenditure which is quiet different to headline CPI. My point is you should aim for 25% more than you expect as a lump sum to compensate for factors you cannot anticipate. I only wasted energy on the capital accumulation part, I have exceeded my target and now wonder if monetary assets will match with physical underwrite/access over my remaining life.

    ps Your Auckland examples are the lucky ones, gaining equity from a timly government immigration policy!
    Last edited by Raz; 17-01-2017 at 03:46 AM.

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