Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 476

The most-challenging year to retire in recent history

Retirement security globally is under increasing pressure, as inflation, a volatile market environment and low interest rates impact retirement balances. The recently-released 10th annual Natixis Global Retirement Index (GRI) reveals 2022 could be the most-challenging year to retire in recent history. The GRI examines the factors that drive retirement security, combining key indicators essential for people to enjoy a healthy and secure retirement.

This article is a summary of the full GRI Report which can be downloaded from this link.

Australia's ranking

Retiree risk in 2022 arises not only in taking retirement income from an already depleted pool of assets, but accepting greater risks in portfolios to make up the ground already lost.

The GRI includes 18 performance indices, grouped into four thematic indices. Australia ranks as follows in 2022:

  • 4th for Finances in Retirement (4th in 2021 and 8th in 2012)
  • 9th for Health (compared to 10th in 2021, and 20th in 2012)
  • 15th for Quality of Life (15th in 2021; 21st in 2012)
  • 19th for Material Wellbeing (compared to 23rd in 2021 and 4th in 2012)

These four indices use the following factors:

  1. Health – life expectancy, health expenditure per capita, non-insured health expenditure
  2. Finances in Retirement – old-age dependency, bank non-performing loans, inflation, interest rates, tax pressure, governance, government indebtedness
  3. Quality of Life – happiness, air quality, water and sanitation, biodiversity and habitat, environmental factors
  4. Material Wellbeing – income equality, income per capita, unemployment

Here are the recent movements in Australia's scores.

The impact of inflation

For most of the past decade, inflation has been exceptionally low. Between 2012 and 2020 inflation for the 38 OECD member countries averaged just 1.76%. However, in the first half of this year, inflation rose for those 38 countries, reaching 9.6% in May 2022.

In Australia, inflation is expected to peak at an annual rate of 7.75% by the December quarter of this year and to fall gradually, however the current level of 6.1% is the highest rate recorded since 1990.

The speed at which costs have increased around the world gives reason to rethink fundamentals in retirement planning. Significant price rises for oil, food, and housing are reducing the purchasing power of retirees and presenting a core economic lesson to those planning for retirement.

Further, financial professionals around the world say underestimating the impact of inflation is the number one mistake investors make in their retirement planning. The OECD projects the over-65 population will increase from 17% of the total in 2019 to 27% by 2050, increasing the strain on retirement security, and putting additional pressures on healthcare and long-term care systems.

10 years of the Global Retirement Index

When we introduced the Natixis Global Retirement Index in 2012, the world had just emerged from the global financial crisis and memories of market turmoil were still fresh. Inflation was low, but so was growth. Central banks had slashed interest rates to all-time lows. Balance sheets had ballooned from asset repurchase programs. And public debt had swelled to record highs around the globe.

On top of it all, the first wave of the Baby Boom generation had just reached retirement age, indicating that pay-as-you-go retirement systems around the world would soon face a stress test like no other. It all raised the question of whether the models for those systems would be sustainable in the long term.

In 2022, the world finds itself recovering from another global crisis. Inflation is running at levels not seen since the 1980s. Balance sheets and debt levels have soared even higher. Central bankers again are turning to interest rates as a stopgap, only this time they’re raising rates. After a decade-long bull run, the markets are more volatile, with indexes and investors around the world experiencing losses. The Boomer retirement wave is at its crest, and the Millennial generation is making its presence known in the workforce.

Interest rates and income: long-term gains, short-term pain

Low interest rates have been the bane of retirement security for well over a decade but there are a lot of advantages to living in a low-interest-rate world. Low rates helped propel global growth from $75 trillion to $104 trillion over the past decade. They’ve helped drive equity markets to record highs, helped business grow, and helped individuals attain homeownership.

Those investing for retirement most certainly benefited, but low rates have not helped retirees in equal measure. In fact, low rates have presented retirees with some difficult choices.

In the simplest terms, low rates have made it hard for retirees to generate income off their savings. With rates in low to negative territory, many were not able to follow the golden rule of 'Never touch the principal'. Instead of waiting for bonds to throw off a sustainable income, retirees were forced to dip into the principal of their nest egg when they might normally seek to preserve their capital.

This puts them in the difficult position of lowering their expected income, accepting that their assets may run out too early, or taking on more investment risk to make up the difference. Each decision takes on heavier consequences in 2022’s volatile markets.

Risks at every turn for retirees

With inflation running at a 40-year high, those on a fixed income will already find it difficult to keep pace with rising costs, let alone find room to cut their income. Longevity adds to the challenge. People may be living longer, but nobody knows how long they will live. As a result, there’s a crucial piece missing to the equation that tells you how much income you can take from your savings while ensuring it will last the rest of your life. 

In the long run, retirees may gain some hope for higher income in the future, but not without some pain along the way as markets weather the change. Unfortunately, few investors may understand what rising rates hold in store for them. In 2019, the Natixis Center for Investor Insight conducted a quiz with 9,000 investors in 27 countries. We asked them what two things happen when rates go up. They weren’t sure.

Professionals may recognise that with rising rates there’s a greater chance for higher income in the future, but that the present value of the bonds you currently own goes down. Only 3% of investors worldwide understood both sides of the equation. One-third didn’t understand either.

Individuals and institutions will find the hope for higher income and improved funding ratios in the long run, but the ancillary effects of rate increases can result in a lot of pain in the here and now.

Demographics: the good and bad of living longer

It’s no secret that the population in Japan, Europe and the US is aging. The drumbeat of concern has been loud and clear since statisticians first realised that the massive post-World War II Baby Boom generation would eventually enter their 60s and that wave would put a strain on retirement systems.

In 2012, the earliest wave of the Baby Boom generation was just reaching retirement age as the 2.1 million individuals born in the US in 1946 inched closer to age 66. Since then, the number of people age 65+ in the US has grown to 16% of a population of 331 million. In Europe, that population represents an even bigger piece of the pie at 20.8% of the 750 million EU residents. The number is bigger still in Italy (23.5%), Finland (22.7%), Greece (22.5%), and Portugal (22.4%).

Even regions with young populations could soon face similar challenges as improved nutrition, healthcare and environmental factors contribute to longevity and low birth rates help push the overall population ever older. This is the case in both China and Latin America in 2022.

Older for longer

Adding to the sheer volume of individuals who would be entering retirement is how long they will live after they retire. OECD reports that the average life expectancy past age 65 in G20 countries reached 21.3 years for women and 18.1 years for men between 2015 and 2020. And while the gains in lifespans past 65 have slowed slightly since 2010, the average for women past 65 in these countries will reach 25.2 between 2060 and 2065, while it will increase to 22.5 for men.

As a result of increased life expectancy and slowing fertility rates, OECD projects the over-65 population to increase from 2019’s 17.3% to 26.7% by 2050. The percentage will be even higher in older countries. OECD estimates that this share of population will surpass 30% by 2050 in Greece, Italy, Japan, Korea, and Portugal.

Population growth doesn’t add up to retirement security

This is where maths becomes most concerning for policy makers. A larger population that will live longer breaks the formula behind most pay-as-you-go retirement systems. Many of these systems, like social security in the US, use payroll taxes to fund government retirement benefits. What makes them work is the balance between the number of working age people and the number of retirees – and others – drawing benefits.

The problem is best illustrated by old-age dependency ratio, which provides a simple statement on the number of retired people out of every 100 people within a population. For most of the developed world, that number has been climbing steadily higher for the past century.

In 1950, just 15 years after its social security system was created, the US had an old-age dependency ratio of just 14.2%. Seventy years later it reached 28.4%. By 2050 the over-65 population in the US will reach 40.4%.

A similar trend shows up in the perennial top three countries in the Natixis Global Retirement Index. Iceland will see its old-age dependency increase from 26.6% to 46.2%, Switzerland’s will go from 31.3% to 54.4%, and Norway’s will rise from 29.6% to 43.4.%.

Limited options for policy makers

Aging populations present limited choices for policy makers – choices that will be difficult as retirement benefits compete with a growing public debt burden. The debt to GDP ratio for OECD countries reached a record high of 95% in 2020, a figure that’s 73% greater than it was in 2007, before the Global Financial Crisis.

Down the road, policy makers could be forced into one of three tough decisions, none of which are real vote-getters. To make up for funding shortfalls they may need to:

  1. Raise payroll taxes: Hiking taxes is never popular and will be even less so should inflation continue to reduce consumer purchasing power as it’s done in 2021 and 2022.
  2. Raise the retirement age: Telling people they have to work longer than planned is an unenviable position. In 2020, French workers took to the streets to protest a proposed retirement age increase from 62 to 64. And in 2021, Swiss workers marched in Bern to protest retirement reforms including a proposed hike in the retirement age for women from 64 to 65.
  3. Reduce benefits: Maybe the least popular option, reducing benefits is not only a political loser, it’s also an economic nightmare for retirees, especially during inflationary periods when their dollars don’t go as far to begin with.

Aging also presents a critical healthcare challenge for both policy makers and retirees themselves. For example, in the US, where health expenditures already account for nearly 19% of GDP, those age 55 and older accounted for 56% of healthcare spending in 2019. Those 65 and older accounted for 35% on their own.

Rising costs are not limited to the US. The World Health Organisation reports that global healthcare spending topped $8.5 trillion in 2019, or twice the $4.2 spent globally in 2000. An older population can also translate into a slower economy. With large numbers of individuals leaving the workforce, OECD suggests that there could be significant economic consequences. Growth could be impeded as:

“there will be less working-age people in the population, older workers tend to be employed less, and may be less productive and entrepreneurial.”

Retire or keep working?

For many individuals globally, the traditional view of retirement is fading. Many continue to work well beyond retirement age. In fact, results from the 2021 Natixis Global Survey of Individual Investors show that even as they plan to retire at age 62 on average, six in 10 believe they will have to work longer than they anticipated. This from a group of more than 8,500 individuals who already has at least $100,000 in investable assets.

To view and download a full copy of the report, visit link.

The Natixis Center for Investor Insight is a global research initiative focused on the critical issues shaping today’s investment landscape. The Center examines sentiment and behavior, market outlooks and trends, and risk perceptions of institutional investors, financial professionals and individuals around the world.

The team includes Dave Goodsell, Executive Director; Stephanie Giardina, Program Manager; Erin Curtis, Assistant Program Manager and Jessie Cross, AVP, Content.

This article is a summary of the full report which should be referenced for more details and source references. The views and opinions expressed may change based on market and other conditions. This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted.

 

29 Comments
Ian
January 10, 2023

I’m about to turn 64 and have been in the workforce since the age of 17. After reading all the comments and responses I am inclined to continue to work for another 5 years rather than have to worry at all about running short of money. In the meantime I’ll just enjoy myself like a retiree. I’m finding even after owning your own home requires an extra $60kpa and I really don’t want to tighten my belt in retirement if I’m fortunate enough to live to my eighties in reasonable health.

Kevin
September 26, 2022

Dudley, as my post clearly stated look at reality since 2014 for educational purposes and isolating a section of my wealth, isn't that just so simple and obvious.


 


(Editor: OK, I'm calling an end to this exchange, all has been said that can be said).

Kevin
September 25, 2022

There is nothing wrong with the article as general opinion.The internet is good though.

I'm being fed loads of articles now all with the headlines screaming 2022 the worst year ever to retire,studies have said.
If I retired this year with $20 million it would be a great year to retire.
I'm now waiting for a Buffett quote to pop up, 22 September 2022.The worst day ever, in the worst year ever to retire.
Good fun isn't it

CW
September 25, 2022

Would like to read more articles on what to do with this inflation.

My two cents. If you believe inflation will eat your money more than you losing on stocks, the strategy is to invest when the equity market crashes?

Warren
September 24, 2022

Since when has the golden rule been "Never touch the principle" I dont believe that was what Paul Keating was thinking at the time Superannuation was introduced. Is really the reason we contribute to super to provide a large lump sum to our kids when we fall off the perch? I plan to retire in the next 2 years and live the comfortable, enjoyable, fun filled retirement i deserve, and use as much of my principle as required, and whatever is left over will go to the kids, as well as the house, and
the other assets held outside super

Dudley
September 24, 2022

"With rates in low to negative territory, many were not able to follow the golden rule of 'Never touch the principal'":

'Since when': 27/Feb/2020 when real interest rates plunged below zero by actions of central banks globally and RBA locally. Currently ~-3%.

Before which real interest rates were ~2%.

Kevin
September 22, 2022

Thanks David. Now I have a clear head after the daily bike ride that really is an excellent article. In my blue collar way and understanding, we had 7 or 8 workers to pay for each pensioner. That pensioner would probably die 3 to 5 years after retirement,no huge cost,and medical care not being as good 50 years ago,no huge cost there either. Today or a bit into the future we have 2 to 4 workers to pay for each pensioner.That pensioner will be a drain on the system for the next 20 to 25 years.I would think health care to keep people alive will get better,and more expensive.Those machines that go beep cost a fortune. Perhaps brutal but people do need to prepare to shoulder some of the load for the future, both in funding their own retirement or part of,and trying to keep healthy to reduce health care costs.I'll have to click the link and read the full report,thanks again

Steve P
September 26, 2022

All very, very true - but very, very few want to properly acknowledge it (comfortable numbness trumps inconvenient/troubling truths). Add in the crippling governmental debts across the Western world, ever increasing (much if it wasted), which is again rarely acknowledged anymore, and we’re heading for a major reckoning. We’ve forgotten (or now feel we are somehow ‘special’ and therefore immune) that nothing is for nothing in this world - and continuing and growing unfunded government spending only makes it so much worse. We’re becoming ever more infantile in an increasingly unstable world.

Allie-Millie
September 22, 2022

It's very personal whether you retire or keep working. From my experience, the main point is owning your home before retirement. I know there are curve balls derailing this goal but being mortgage free gives you options as you get older.

Ian
September 22, 2022

Inflation and it's impact on cpi is always a challenge for retirement. I think that this just highlights the importance of calculating returns in todays dollars (subtract long term mean of inflation from predicted returns) and to always have as much of my assets as possible in growth whilst keeping a portion in cash to supplement earnings. That way I hope to minimise the need to sell assets to supply income and lock in losses.

John
September 21, 2022

I retired by choice 6 years ago at 62. Very fortunate to have ridden the asset boom since then without any debt, such that we have more capital now than when I retired. This despite spending almost 10% of the initial investible capital each year, living the good life without a budget. With asset prices now in decline, inflation unable to be controlled without triggering a depression and/or political turmoil, our unavoidable costs (food, energy, insurances, healthcare. transport, memberships, government charges) are rising rapidly. Variable costs (like travel, entertainment and repairs/replacements) are rising even faster, such that we either spend more time at home or trust there will be another boom in 10 years. I also wonder how our daughter will fund a tripling of mortgage interest rates in 12 months when her 2 year 1.85% fixed rate mega-mortgage is renegotiated. Blessed to only have one to worry about.

John
September 21, 2022

Self funded retirees are disadvantaged. Consider that to earn equivalent of centrelink aged pension would require over $1.5 million in capital - if invested safely !! Do as other countries do; that is everyone receive aged pension and just pay tax on amounts over that. Simplifies things greatly and removes a giant bureaucracy which is non productive.

Kevin
September 22, 2022

John to do what other countries do you have to do what they do.
You can have whatever you are prepared to pay for.The UK system operates the same as most other countries.For this year the pension is £185.15 ( $319 per week at 185/.58).To get that you need 35 years of NICS contributions.For this year the contributions are 13.25% for the employee,and 15.05% for the employer.Call the pension $16,600 per year depending on exchange rates
In reality you have contributed more than 35 years.Start work at 16,and retire at 66,50 years of contributions.
They have been raising those contributions since around 1976.They came to exactly the same conclusion as other countries.We will have a lot of old people,and not enough young people to pay for them.
As for simplification,no.When I began the process in around 2002 a phone call to speak to somebody,4 weeks later a booklet arrives explaining everything.How to increase my pension by making up missing years and how much each year would cost.How much I would get based on the number of years contributed.Then you needed 44 years of contributions.Then you could pay for 6 years of missed contributions and continue to pay each year,I think it was around £ 350 a year.

Now they have a computer system,everything faster and easier ( apparently).Around 18 months of trying to talk to a computer that just takes you round and round in circles to get nowhere .Fill in complaint forms on line non stop,they are ignored.Eventually talk to somebody,they have to deal with exactly the same useless computer system.That takes them about 8 weeks.Then I win,I call them back and they say your pension starts from this date ,at the rate of $X and it will be paid every 4 weeks on Friday.
Germany in the 1970s early 80s,great A wonderful social security system.Unemployment benefit of 80% of wages,good pensions,and around 50% of wages taken to pay for it all .Here,I don't want to pay 50% of wages,no incentive to work if that happens,make somebody else pay more tax so I can pay less.Germany also has the same problems now,no young people to pay for the old people.

The system here is quite simple.CBA send me a brief report for the interim dividend in Feb of this year.For those that bought the minimum 400 shares in 1991 at a cost of $2100 approx they are now worth $220K.Call it a 100x return.For those that decide to buy 400 shares in CBA on Monday at a cost of say $40K reinvest all dividends then in 31 years time you may get a 100 fold return,you may get a 50 fold return,you may get anywhere between 50 and 100 X what you paid ,nobody knows.The game is simple.

Then again the next 31 years can be exactly the same as the last 31 years.Change the system I don't like it.Change negative gearing I don't like it.Change franking credits I don't like.Make somebody else pay more tax.
The system is a pain in the rear,it is also very simple if you go along with a few simple rules.You can have what you are prepared to pay for is a good start.

Kevin
September 23, 2022

I should also add tax free in the UK is £12600 approx.Pensioners pay tax after that,the same as workers.This means somebody on the basic pension in Australia ( $26K?) would be paying tax in the UK at 20% after the tax free bit.They have to go to work to reach the tax free level .
Super isn't compulsory in the UK,they may have changed it within the last few years.You take money out of super then 25% is tax free,the other 75% is taxed at 20%.Over pension age there are no NICS contributions.You paid NICS for 50 years.

Pensioners over there complain just as long and loud how much of a struggle it is.The system should be changed

Google pension scandals UK.Their computer systems seem incapable of getting it right.Women complain long and loud why they now have to work until the age of 66 (Waspi women).They want to retire at 60 as they did before.I think they informed women from 2015 that the pension age would rise.They informed them in 1995.They basically got 20 years notice of changes,not happy, change the system. 20 years notice is not enough ,nobody told me ( they didn't want to know?) etc etc.

You would need to check this,with gov.uk.You take the whole system or none of it,it isn't a case of apply Australian laws to what may or may not happen in other countries.

Good luck trying to plough through the IRS in the USA,I think pensioners there also pay tax.A Roth IRA is tax free on withdrawal,you paid tax on the way in.
Super systems there are taxed as income,you didn't pay tax on the way in.You would also need to check that.

Dudley
September 23, 2022

"Self funded retirees are disadvantaged.":

The deemed income for a home owner couple with $935,000 Assessable Assets is:
= (26 * 0) + (0.25% * 93600 + 2.25% * (935000 - 93600))
= $19,165.50 / y.

The Age Pension + deemed income for a home owner couple with $419,000 Assessable Assets is:
= (26 * 1547.60) + (0.25% * 93600 + 2.25% * (419000 - 93600))
= $47,793.10 / y

The self funded retiree's income as a percentage of the Full Age Pensioner's income is:
= 19165.50 / 47793.10
= 40.1%

The full Age Pensioner's income is 2.5 times that of the self funded retiree.

"Do as other countries do; that is everyone receive aged pension and just pay tax on amounts over that.":

That is the New Zealand system. Other countries mess about with all sorts of complications:
https://www.oecd.org/publications/oecd-pensions-at-a-glance-19991363.htm

Kevin
September 23, 2022

Dear me Dudley there is so much wrong there. Deemed income is not actual income.Round it,do you really think $1 million will produce $20,000 in income.

The average annual return for my industry fund is 9%.Made up of dividends and growth in asset prices ( or loss). $1 million produces 90K in income .Draw out 80K tax free.You' ll die with more than you retired with,perhaps less depending on rises and falls in said assets.Probability is a good income and leave say between $750K and $1.25 million on rough averages . Anyone for inheritance ( death) taxes as other countries have.
$1 million outside of super is not deemed.The grossed up yield is approx $50K in fully franked dividends,perhaps 55K.Then of course the gain or loss on capital values.Then go into SAPTO etc.

Fully self funded and have no dealings at all with Centrelink or whatever they are called this week.Nobody getting any pension from the govt is better of than I (we) are.

Don't quite 3rd parties,go to the NZ tax office site.Tax from $1 to $14000 is 10.5%.Pay tax from the very first dollar.Pensioner or not.A direct comparison is difficult. Try $100K earned in Australia taxed at 25% approx.Then $100K in NZ You may be surprised.
The tax free super in Australia makes a difference.NZ is taxed on every dollar,no matter where it comes from.Top rate in NZ,33% on 70K and up I think.

James
September 23, 2022

"The deemed income for a home owner couple with $935,000 Assessable Assets ......."

But nobody earns the deemed income!

My $935,000 could easily be earning 6-7% ,including FC's in a tax free environment, delivering $56,100- $65,450 p.a. Sure it can be volatile but for me volatility is not risk, just the price paid for a seat at the table. I would rather have more capital to do with as I wish, than less, and a guaranteed full pension.

Dudley
September 24, 2022

"The full Age Pensioner's income is 2.5 times that of the self funded retiree.":

Actually, the Age Pensioner is a little more better off than that because the Age Pension payment rate is:
' indexed twice each year by the greater of the movement in the CPI or the Pensioner and Beneficiary Living Cost Index (PBLCI)'

With CPI increasing 6.1% / y at last reading, the Age Pensioner couple is ahead of the self funded retiree couple by:
= ((1 + 6.1%) / (1 + 2.25%)) - 1
= 3.77% / y [$1,515 this year]

"The average annual return for my industry fund is 9%."

'median Growth fund over the [past] 30 financial years':
https://www.superguide.com.au/comparing-super-funds/super-funds-returns-financial-year
Average return: 7.67% / y

Retail interest rate over same [past] 30 financial years:
Average yield: 4.72 / y [deeming rates tend to follow retail interest rates]

Retirees tend to prefer the guaranteed capital and much smaller volatility of bank deposits.

Dudley
September 24, 2022

"$1 million produces 90K in income .Draw out 80K tax free.You' ll die with more than you retired with,perhaps less depending on rises and falls in said assets.Probability is a good income and leave say between $750K and $1.25 million on rough averages .":

"My $935,000 could easily be earning 6-7% ,including FC's in a tax free environment, delivering $56,100- $65,450 p.a.":

Unfortunately the total return is not reliably 9% or 6% every year.

There is much research on the 'Safe Withdrawal Rate'; examples:
https://www.firstlinks.com.au/safe-withdrawal-rates-australian-retirees
https://www.morningstar.com.au/smsf.mvc/article/withdrawal-rates/7529/8

These expresses the results succinctly:
https://www.morningstar.com.au/s/images/7529-11.gif
https://www.morningstar.com.au/s/images/7529-12.gif

A withdrawal rate of ~3.5% / y had [past tense] a ~90% chance of not exhausting capital, and hence income, over a 30 year retirement based on Monte-Carlo simulation of retirements commencing each year since 1900. Some years resulted in large unused capital.

Should Age Pension be available throughout retirement, there is 'no risk' of a having no income.

Not counting the Age Pension, if total return equalled inflation and living standard the safe withdrawal rate would be:
= PMT(0%, 30, -1, 0)
= 3.33%
which is simply:
= 1 / 30

James
September 24, 2022

"Should Age Pension be available throughout retirement, there is 'no risk' of a having no income."

Start with more, live life as you can, and at worst you may end up with a part or full cpi indexed pension. If people want to preserve all their capital, then life may be lean at times, depending on market volatility and bear/bull markets.

Dudley, you often suggest retirees are better off reducing their assets (home renovate etc) and thus get a full or part pension. No doubt your maths is correct, but having the ability to draw down on capital (in small bites), if and when required, is better than having to sell or reverse mortgage your home to access it. It has a "psychological" value to the retiree.

Dudley
September 24, 2022

"having the ability to draw down on capital (in small bites), if and when required, is better than having to sell or reverse mortgage your home to access it.":

It is, definitely.

An income of $47,793.10 / y, a low maintenance home and other costs of living totalling $25,000 / y plus $419,000 Assessable Assets (mostly investable capital) means having the freedom to draw on said capital and ability to regenerating capital at $22,793.10 / y.

Kevin
September 24, 2022

Dear me Dudley,so much wrong again.
Reality rules,what you want to see doesn't rule.

As I have said before CBA provide enough income for me( us) to live on.As this is an educational site we'll have a look at reality since 2014 for educational purposes.Isolating a section of my worth at that date of around $1 million slightly over.
10,000 shares in CBA had a value of $800K.The DRP price given was $80.36 I think,you can check on their website for educational purposes.
The gross income was $59,400.Then I had super,which provides $36 K of tax free income.I think there was around $300K in super.
For educational purposes the starting point is $1.1 million providing 95K in income.
Having a high income means money can be recycled, excess income used to purchase more shares in CBA or put in to super.Exactly what I did.

As I have explained I buy more shares in CBA on dips.The last purchase being Feb this year at around the price they are now,give or take.Shall we say I now have 11,000 shares in CBA due to recycling excess income.

11000 shares in CBA produced $58,900 in gross income year ended 30/6/22.Add on $36K from super so a gross income of shall we round it and say $95K.

11000 shares in CBA as of now roughly
$1.028 million.For educational purposes you check it .Excess income also went into super,I don't like super,but it works.I would have been better off leveraging up a touch,I fell for the siren song of put as much as you can into super.Dumb me probably,after resisting that song for 30 years I was worn down by it .There is around $360K in super,I never bother looking .
So 1028+ 360 gives $1.388 million.
Reality Dudley,nobody can ever prove it wrong,no matter how much they want to deny it.

Simplicity going forward,studies do not prove that reality is wrong either.I still use the DRP in CBA for excess income,freeze everything ,$360K in super will produce $36K in income for the next 10 years.The growth is unknown,the $36 K will be constant,it isn't needed .
11000 shares in CBA for the next 10 years is the same,the growth is unknown,and the income produced is unknown.I expect the income will be higher in 10 years time,I expect the capital value to be higher in 10 years time.Patience and do nothing is all I need,and of course turn off all that ridiculous #_&$+@// noise that will be spouted every day for the next 10 years.

There we go Dudley,reality is we start with $1.388 million,see how it goes for the next 10 years shall we .I find these studies and rules that the financial industry spouts to be nonsense. 4% rules and safe drawdown limits,rubbish .
See how we go shall we,you can spend the next 10 years convincing yourself that somebody receiving the full pension for the next 10 years will have a higher income than I have and will be better off .

For educational purposes and reality Dudley,that was a complete waste of my time wasn't it Hopefully other people find it educational.

James
September 24, 2022

@Dudley: "An income of $47,793.10 / y, a low maintenance home and other costs of living totalling $25,000 / y plus $419,000 Assessable Assets (mostly investable capital) means having the freedom to draw on said capital and ability to regenerating capital at $22,793.10 / y."

Kudos to you! "Wealth consists not in having great possessions, but in having few wants.” (Epictetus, a stoic philosopher)

Dudley
September 24, 2022

"For educational purposes":

Should the past be an adequately accurate guide to the future, it is 90% likely that you will expire with more money than you needed - provided you don't spend more than ~3 - 4% / y of capital.

And should you live long, it is also likely the some form of the Age Pension will be waiting for you should you lose or spend a bundle.

A gambling person would take that to mean put all but $419,000 on red. Double or half. Does not matter.

Dudley
September 24, 2022

"Wealth consists not in having great possessions, but in having few wants.”:

Great wealth + few wants seems best.

Kevin
September 26, 2022

Dear me Dudley.Investing is not gambling ,no matter what you want to see or what you think a gambler might think.Simple reality.When CBA was listed in 1991 everybody including a gambler said "it's the same as putting it on red". Every day for the last 31 or 32 years they have repeated the same thing .Every day for the coming 31 or 32 years they are going to repeat the same thing. I expect the future to be unknown.I expect CBA to survive for the next 31/32 years.
For the full period of 62 or 64 years I expect a gambler and everybody else to deny reality.Then the baton will be passed down through the generations as each generation does exactly the same thing.There are many ways to prevent losses.There is no way to point out reality to people.

They see what they want to see and they hear what they want to hear.It is so important to find out what is real.

Dudley
September 26, 2022

"Investing is not gambling": All is a gamble, the odds of loss per unit time small or large.

"There is no way to point out reality to people.": There is; you have all eggs in one basket.

"A gambling person would take that to mean put all but $419,000 on red. Double or half. Does not matter.": Amount of capital owned only matters if capital as a multiple of expenses per year is less than approximately the length of expected retirement in years. For most, the Age Pension will do and extra capital is nice but not necessary.

Graham Wright
September 21, 2022

Lots of professionals making lots of money telling you how much capital and earnings you will need to retire, planning the lifestyle you will lead and helping you to get there. Then after you retire, life enters the arena and you find out you have to work with whatever assets you have, be it enough or not, then your planned lifestyle changes when life throws up new opportunities, new constraints. All that planning goes out the window.
What you can't plan for is the new opportunities and constraints that impact you. The first cruise, the first MensShed, Bowls game, U3A event or the many other activities you can find, or the first major health issue you confront or family issue that arises! Any of these could be game changers destroying pre-planned lifestyles, pre-planned finances.
The glossy advertisements for Retirement Village lifestyles, circumnavigating Australia or the World, the glossy planning of you life by professionals, all means naught when reality bites. You are then on your own and you learn quickly that your urge to survive takes over, you cut your cloth to fit and you get on with life.

Geoff
September 21, 2022

Now you tell me! Nonetheless I did it anyway - when retrenched from a major bank earlier in the year, the decision seemed obvious, even though I'm barely into my 60s. The good news, I guess, is that if I needed to I'm pretty sure I could pick up work doing something, somewhere, locally - businesses are looking for staff all over the joint. Part of the problem is that that demand hasn't yet morphed into working conditions that we older people would be interested in - ie. 1 or 2 days a week, for "pin" money and general expenses. In time perhaps it will.

I think retirement is sort of like the old adage about buying a Porsche (insert other luxury car brand of your choice here) - they say that if you can only just afford a Porsche, then you can't really afford a Porsche. So it is with retirement - unless you've significant "fat" in your wealth, above and beyond what will generate the income you desire, you probably should work a bit longer.

 

Leave a Comment:

     

RELATED ARTICLES

The world by 2050

banner

Most viewed in recent weeks

An important Foxtel announcement...

News Corp's plans to sell Foxtel are surprising in that streaming assets Kayo, Binge and Hubbl look likely to go with it. This and recent events in the US show the bind that legacy TV businesses find themselves in.

Welcome to Firstlinks Edition 575 with weekend update

A new study has found Australians far outlive people in other English-speaking countries. We live four years longer than the average American and two years more than the average Briton, and some of the reasons why may surprise you.

  • 29 August 2024

The challenges of building a portfolio from scratch

It surprises me how often individual investors and even seasoned financial professionals don’t know the basics of building an investment portfolio. Here is a guide to do just that, as well as the challenges involved.

Creating a bulletproof investment portfolio

Is it possible to build a portfolio that performs well in any economic environment? So-called 'All Weather' portfolios have become more prominent of late, and this looks at what these portfolios are and their pros and cons.

Welcome to Firstlinks Edition 578 with weekend update

The number of high-net-worth individuals in Australia has increased by almost 9% over the past year, and they now own $3.3 trillion in investable assets. A new report reveals how the wealthy are investing their money.

  • 19 September 2024

Why I'm a perma-bull on stocks

Investors overestimate the risk of owning stocks and underestimate the risk of not owning them. In the long run, shares crush other major asset classes, yet it’s one thing to understand this, it’s another to being able to execute on it.

Latest Updates

Investing

Where to find good investment writing and advice

Investors are exposed to so much information that it’s often hard to filter the good from the bad. This looks at how to tell the difference between the two and the best sources of investment writing and advice.

Investment strategies

Are demographics destiny for the stock market?

Demographics influence economies and stock markets, but other factors like technology and policy can overshadow their impact. Diversifying across income-producing assets can help mitigate demographic-driven challenges and build wealth.

Shares

Are we reaching the end of Transurban's gravy train?

You can only push monopoly power so far before it triggers a backlash. Transurban might have finally pushed too far, raising big questions for investors.

The dawn of wicked asset classes

Collectables and other non-traditional assets often rally late in the cycle. But you should only buy them with a clear purpose and with money you can afford to lose.

Property

This property valuation metric needs a rethink

Capitalisation rates, commonly known as ‘cap rates’, are a fundamental metric in Australian property investing.  However, this seemingly simple and ubiquitous measure can be far more complex to use when comparing different types of properties.

Superannuation

Improving access to account-based pensions

Research suggests that 50,000 Australians who are retiring over the next year may not be able to access an account-based pension because they do not meet minimum application requirements of their super fund.

Do sanctions work?

Sanctions are losing effectiveness due to increasing economic polarisation, with many countries increasingly circumventing restrictions. Examples include China, Iran and Russia, whose industries have adapted despite sanctions.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.