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#1295035 1-May-2015 13:55

Geese: $1 mil sounds a lot to me. I guess it depends on your perspective. Someone earning minimum wage would need to work 40 hours a week, 52 weeks of the year, for 48 years to earn $1 million in todays dollars. That would equate to working from 18 to 66 YO.

Yeap, and someone on a minimum wage would unlikely be saving anyway.Plus tax comes out of it. Unless you are in a really high wage job, generally people don't get rich on a salaried job. You either get into the property game, setup your own business, to then onsell at some stage, or get a really well paid job, probably with good very good qualifications. Or win lotto powerball (the prizes in normal lotto haven;t kept up with inflation so winning that now isn't enough to retire). Most of these require quite a lot of good luck,

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#1295036 1-May-2015 13:56

mattwnz: The only way to protect the capital not losing value from inflation, is to also save the interest, which then compounds. That way you then make interest off both the capital and compounding interest. But doing that, you won't be able to use the interest to live on, and will need to work or have some other form of income.

That's exactly what I'm saying. Save some interest, spend some interest. It does assume (1) your return on $2 million is much higher than your return on your everyday call account, and (2) that your financial commitments are low.

rayonline

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#1295049 1-May-2015 14:15

Part time work in something else etc. Let the 300k grow don't touch returns and.dividend reinvest it back in. The return would be higher than inflation. Compare the NZX with 3% net off a savings account OVERTIME.

Could also rent house out live overseas where cheaper. Then again I'm not the type who dine out regularly or stay at the Hilton overseas. Not that hard to make a steak or pizza or pour from a $12 bottle.

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#1295050 1-May-2015 14:16

mattwnz: Personally I wouldn't touch houses in Auckland, the bubble has to burst at some stage. Sales are at levels of 2007 and we know what happened in 2008.

umm let me guess in 2008 the prices held level for a few months and then went up? [AKL]

mattwnz

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#1295076 1-May-2015 14:54

joker97:
mattwnz: Personally I wouldn't touch houses in Auckland, the bubble has to burst at some stage. Sales are at levels of 2007 and we know what happened in 2008.

umm let me guess in 2008 the prices held level for a few months and then went up? [AKL]

There was quite a big drop for about 2-3 years if you look at the graphs. Quite a lot of mortgagee sales etc. The problem is owing more than the house is worth, banks get very uneasy when this occurs, and obviously the Reserve bank is really worried about this too. It is an Auckland problem, and houses will only go up to a level that people can afford to borrow, or what overseas buyers are willing to pay. Overseas buying restrctions on exisitng houses stock I think is needed to fix part of this, which is what they do in Oz.

bazzer

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#1295090 1-May-2015 15:09

mattwnz: I think it does depend on age though, becuase 2 million in 20 years will be worth a lot less than 2 million now. I doubt that is going to support a couple for 40 years. If you are living off the interest from the 2 million, but never touching that capital, then over time the capital will lose value due to inflation. The only way to protect the capital not losing value from inflation, is to also save the interest, which then compounds. That way you then make interest off both the capital and compounding interest. But doing that, you won't be able to use the interest to live on, and will need to work or have some other form of income. But if you are over 65, you will get the super, which with a bit of the interest from your savings, is likely to be enough to live on, espeically if you already own a home. I think to be really financially independant and expect to live on it for 30-40 years, people would need savings closer to 5-10 million. I remember when 1 million used to be a huge amount of money, but now many aucklanders have houses that are on paper worth that.

Clearly you don't need to save all the interest though, only enough to counter inflation. In practice, this could mean a reduction on your returns of maybe 2%. Long term, you should still be able to make 5% net on that money, i.e. $100k pa and you don't have rent or a mortgage to pay.

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#1295092 1-May-2015 15:23

bazzer:
mattwnz: I think it does depend on age though, becuase 2 million in 20 years will be worth a lot less than 2 million now. I doubt that is going to support a couple for 40 years. If you are living off the interest from the 2 million, but never touching that capital, then over time the capital will lose value due to inflation. The only way to protect the capital not losing value from inflation, is to also save the interest, which then compounds. That way you then make interest off both the capital and compounding interest. But doing that, you won't be able to use the interest to live on, and will need to work or have some other form of income. But if you are over 65, you will get the super, which with a bit of the interest from your savings, is likely to be enough to live on, espeically if you already own a home. I think to be really financially independant and expect to live on it for 30-40 years, people would need savings closer to 5-10 million. I remember when 1 million used to be a huge amount of money, but now many aucklanders have houses that are on paper worth that.

Clearly you don't need to save all the interest though, only enough to counter inflation. In practice, this could mean a reduction on your returns of maybe 2%. Long term, you should still be able to make 5% net on that money, i.e. $100k pa and you don't have rent or a mortgage to pay.

+

5% net of inflation and tax, I'll take that thanks

Interest is taxable, so deduct 30% from the 5% for 100k, that leaves 3.5%. Deduct inflation at taxfree at the average since 2000 of 2.7%, or last years of 1% which National say is too low and you have 0.8 real to 1.8% real.

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mattwnz

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#1295103 1-May-2015 15:52

bazzer:
mattwnz: I think it does depend on age though, becuase 2 million in 20 years will be worth a lot less than 2 million now. I doubt that is going to support a couple for 40 years. If you are living off the interest from the 2 million, but never touching that capital, then over time the capital will lose value due to inflation. The only way to protect the capital not losing value from inflation, is to also save the interest, which then compounds. That way you then make interest off both the capital and compounding interest. But doing that, you won't be able to use the interest to live on, and will need to work or have some other form of income. But if you are over 65, you will get the super, which with a bit of the interest from your savings, is likely to be enough to live on, espeically if you already own a home. I think to be really financially independant and expect to live on it for 30-40 years, people would need savings closer to 5-10 million. I remember when 1 million used to be a huge amount of money, but now many aucklanders have houses that are on paper worth that.

Clearly you don't need to save all the interest though, only enough to counter inflation. In practice, this could mean a reduction on your returns of maybe 2%. Long term, you should still be able to make 5% net on that money, i.e. $100k pa and you don't have rent or a mortgage to pay.

Luckily inflation at the moment is quite low, although Auckland housing prices may dispute that, as two million dollars a year ago won't buy you a 2 million house today, even with interest added. Inflation in NZ seems to average around 2.7% from a google search, and at the moment bank deposit rates at the bank are under or around 4%. So removing tax and retaining enoough in the account to look after inflation, it doesn't leave a big amount. Even 1%, is only 20k a year which isn't really enough to live on, but is probably enough to top up super if you are of retirement age. But those of retirement age would probably look at reducing the capital and using it anyway, as you can't take that money with you when you die. Thus the persons age is very important.

mattwnz

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#1295105 1-May-2015 15:54

tdgeek:
Interest is taxable, so deduct 30% from the 5% for 100k, that leaves 3.5%. Deduct inflation at taxfree at the average since 2000 of 2.7%, or last years of 1% which National say is too low and you have 0.8 real to 1.8% real.

You'll be very lucky to get 5% these days at a bank. Closer to 4% now as banks are dropping their saving rates every month.

bazzer

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#1295107 1-May-2015 15:55

tdgeek:
bazzer:
mattwnz: I think it does depend on age though, becuase 2 million in 20 years will be worth a lot less than 2 million now. I doubt that is going to support a couple for 40 years. If you are living off the interest from the 2 million, but never touching that capital, then over time the capital will lose value due to inflation. The only way to protect the capital not losing value from inflation, is to also save the interest, which then compounds. That way you then make interest off both the capital and compounding interest. But doing that, you won't be able to use the interest to live on, and will need to work or have some other form of income. But if you are over 65, you will get the super, which with a bit of the interest from your savings, is likely to be enough to live on, espeically if you already own a home. I think to be really financially independant and expect to live on it for 30-40 years, people would need savings closer to 5-10 million. I remember when 1 million used to be a huge amount of money, but now many aucklanders have houses that are on paper worth that.

Clearly you don't need to save all the interest though, only enough to counter inflation. In practice, this could mean a reduction on your returns of maybe 2%. Long term, you should still be able to make 5% net on that money, i.e. $100k pa and you don't have rent or a mortgage to pay.
+

5% net of inflation and tax, I'll take that thanks

Interest is taxable, so deduct 30% from the 5% for 100k, that leaves 3.5%. Deduct inflation at taxfree at the average since 2000 of 2.7%, or last years of 1% which National say is too low and you have 0.8 real to 1.8% real.

All good points, expect that your starting point should be higher than 5%. Are you really trying to say that long term returns on NZ shares is only 5% (price gains and dividends combined)?

TinyTim

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#1295111 1-May-2015 16:01

There's something wrong if you could only get 5% on $2 million.

tdgeek

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#1295131 1-May-2015 16:14

mattwnz:
tdgeek:
Interest is taxable, so deduct 30% from the 5% for 100k, that leaves 3.5%. Deduct inflation at taxfree at the average since 2000 of 2.7%, or last years of 1% which National say is too low and you have 0.8 real to 1.8% real.

You'll be very lucky to get 5% these days at a bank. Closer to 4% now as banks are dropping their saving rates every month.

There is that too, your right, that takes us close to zero

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#1295147 1-May-2015 16:21

I think that maintaining your $2M (or whatever) plus inflation is the wrong approach. It makes no sense to die with $2M in the bank. My objective is to die with nothing but a pre-paid funeral, so that I can write in my will "Being of sound mind and body, I blew the lot". (This will also save a lot of squabbling over family trusts and why did Fred get a bigger inheritance than Myrtle).

NZ life expectancy tables show that if I was 65 in 2010-12, I could expect to live another 18.8 years. Extrapolating, it looks like by my retirement year that would increase to about 20 years. My wife is younger than me, and women live longer, so I'll increase that to 25 years. If I live beyond 90, it's a bonus, and I'll be in a retirement home and not able to spend anything anyway.

Right now we're living comfortably on about $50K per year now after paying taxes, *and* we're paying the mortgage off. So I figure that with mortgage paid off we can live comfortably on the same amount... possibly a lot less.

So, 25 years * $50K = $1.25M at retirement day, *including* the house which can be reverse-mortgaged. I'd expect the interest on the $1.25M would balance out inflation.

Saving more than that is just a waste... I'm better off to spend it now, whilst I have health and fitness and sanity to enjoy it. Actually, I should have spent more 20 years ago, when I was a lot healthier and fitter (and saner?)

tdgeek

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#1295151 1-May-2015 16:23

bazzer:
tdgeek:
bazzer:
mattwnz: I think it does depend on age though, becuase 2 million in 20 years will be worth a lot less than 2 million now. I doubt that is going to support a couple for 40 years. If you are living off the interest from the 2 million, but never touching that capital, then over time the capital will lose value due to inflation. The only way to protect the capital not losing value from inflation, is to also save the interest, which then compounds. That way you then make interest off both the capital and compounding interest. But doing that, you won't be able to use the interest to live on, and will need to work or have some other form of income. But if you are over 65, you will get the super, which with a bit of the interest from your savings, is likely to be enough to live on, espeically if you already own a home. I think to be really financially independant and expect to live on it for 30-40 years, people would need savings closer to 5-10 million. I remember when 1 million used to be a huge amount of money, but now many aucklanders have houses that are on paper worth that.

Clearly you don't need to save all the interest though, only enough to counter inflation. In practice, this could mean a reduction on your returns of maybe 2%. Long term, you should still be able to make 5% net on that money, i.e. $100k pa and you don't have rent or a mortgage to pay.
+

5% net of inflation and tax, I'll take that thanks

Interest is taxable, so deduct 30% from the 5% for 100k, that leaves 3.5%. Deduct inflation at taxfree at the average since 2000 of 2.7%, or last years of 1% which National say is too low and you have 0.8 real to 1.8% real.

All good points, expect that your starting point should be higher than 5%. Are you really trying to say that long term returns on NZ shares is only 5% (price gains and dividends combined)?

The 5% quoted by whoever it was was the interest rate

tdgeek

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#1295152 1-May-2015 16:24

TinyTim: There's something wrong if you could only get 5% on $2 million.

Yes, it gets better as the principal increases, but as Matt stated 5% is bit much anyway.

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