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$1 Million Annual Income - Dreaming or Not?

Discussion in 'Investing Strategies' started by Rickson, 4th Jan, 2006.

  1. Rickson

    Rickson Well-Known Member

    Joined:
    23rd Oct, 2005
    Posts:
    52
    OK - I've read the threads about what we are getting out from InvestEd - Let's try this one!

    I think we are all agreed that we don't want to retire on 20K per annum. Every time these stats are mentioned, for approx, typical retirement incomes, it scares me ******!.

    Over the last couple of years I have played with entering 200K for target annual income, in various calculators provided on the Internet, some of which seem now to be discontinued or not allowed. Sometimes this number has challenged the system. But I decided that I wanted to spend more in retirement than while I am working. After all, who has time to book the latest discounted cruises, or take up all sorts of other wonderful travel options, while we are working 48 or 46 (with Public Holidays) weeks of the year?

    What would it take to lock in $1 million per annum, in reasonably consistent income? How likely is it that reasonably ordinary people, but with an interest in investment, could do it?

    OK - one scenario!

    Value % pa growth
    Property capital growth, $5,000,000, 5.0%, $250,000
    Property net rental returns, $5,000,000. 0.5%, $25,000
    Dividends. $4,000,000, 4.0%, $160,000
    Share capital growth, $4,000,000, 5.0%, $200,000
    Salaries (2), $140,000
    Total, $775,000

    OK - this is not a million, and it includes salary income and doesn't include financing costs. But what would be a good way to plan for a sustained household income of $1 million per annum?

    The potential downsides/risks include projected increases in interest rates and projections of lower returns due to more capital looking for a home.

    Please discuss.
     
    Last edited by a moderator: 5th Jan, 2006
  2. Nigel Ward

    Nigel Ward Team InvestEd

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    10th Jun, 2005
    Posts:
    1,172
    Hi Rickson

    It's just a factor of the base and the % return isn't it?

    The bigger the pie plus the higher the % return the easier it is to reach the $1m net per annum.

    I guess if you had a $15m unencumbered portfolio returning 7%pa you'd get your $1m pa. Of course if you reinvested some of the return it would build up the base and thus insulate you for those years where the return was lower.

    I guess the bigger question is can this be achieved by Mr/s Average?

    I've got to dash now but I'll return to this topic tomorrow. You raise a good discussion topic Rick.

    Thanks
    N.
     
  3. TakeStock

    TakeStock Well-Known Member

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    Sydney
    You have picked the arbitrary amount of $1 000 000 per year - a rather large income for Mr and Mrs Average to receive. It could of course be arranged through careful investing over a large period of time, but it would take discipline and sacrifice.

    It would be better to evaluate an annual income necessary for the particular couple to maintain a lifestyle that suits them. This can vary greatly. Some may be happy (and isn't that one of the ultimate aims) on an income of $40 000 per year, whilst others may need an income of $250 000 or more per year.

    Having said that, if $1 000 000 per year was the income you needed to maintain your lifestyle, then the yield from your assests would obviously need to provide this. A 10% return from a lazy $10 mil or 20% from $5 mil. The assets could be property, shares, businesses, royalty/commission streams (maybe think about writing a book about a young wizard!). You really would need to be very committed and give sufficient time for compounding to work.

    Good luck and all the best for the new year.

    Cheers
     
  4. Glebe

    Glebe Well-Known Member

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    $1m per year = $2740 per day! Wow, I could get used to that, but I don't think I'll ever get near it.

    If you're still earning $70 000 whilst chasing down $1m you must really love your job!! :) When I hit $100 000 passive, I'm retiring.
     
  5. Tropo

    Tropo Well-Known Member

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    Location:
    NSW
    Another option still exist.

    When trading currency market weekly target for many private traders is approx. 200-300 pips ( clear ).
    So 200 pips ( points ) per week = $ 2000 US ( 1 pip = $10 US ) per one contract per one pair ( say … EUR/USD ).
    $ 2000 x 52 weeks = $ 104 000 US per year.

    If traded 10 lots ( 10 contracts ) each time per one pair x 52 weeks = $ 1 040 000 US per year.

    But yes ....This is very hard work - unfortunately... :mad:
    :cool:
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    One thing some of you seem to have missed from Rickson's post - is that the majority of the "income" in his scenario comes from capital growth.

    Think about it. You might have $X thousands of dollars in income per annum right now, but how much do you have in capital growth each year ?

    What if you were to spend, say, 40% of that capital growth (leaving the other 60% there for buffer and compounding) ?

    How much would your "cashflow" be now ?

    It's actually surprising when you calculate it (assuming you already have a reasonable investment portfolio).

    Naturally, the more of your growth you spend, the slower your compounding effect is, but its still a source of cashflow you can tap into if correctly structured.
     
  7. Tom&Don

    Tom&Don Active Member

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    Melbourne
    Uh, what time frame are we talking about? How long have you got to accumulate an asset base large enough to generate $1M spendable moolah p.a?

    Eg. I'm 34. By the time i'm 62 I will be generating this type of 'income'. (according to my plan, based on real conservative projections)

    How do I know this?

    With our current asset base appreciating at avergae 6% (CG not CF) we will have enough for about 700K income by the time i'm 65 with NO other intervention from now until then. However, with additional active smart investing i KNOW I will have the asset base to make $1M p.a. easy.

    Lets face it - $1M pa income is only about $14.2M in assets generating 10% cf with 30% tax rate.

    But -

    1) I expect I will be smart enough to generate way more than 10% income from my investments per annum

    2) I expect I will not have to pay 30% tax on the full amount.

    3) Also Need to factor inflation into this too.

    4) probably should have a few more points but I cant think of any more its too early in the morning and my daughter insists on smearing vegemite all over the chair so im kinda distracted too.

    sooo ....

    If you can do your utmost to secure $2M quality assets, then leave them for for about 25 odd years you should have an asset base around 14-15 Mill.

    How can you do it? Thats not my job to tell you!!

    I'm doing this with developments at the moment, have lots of contacts for Joint Ventures here and interstate, but will do whatever it takes to supercharge the aquisition of this 2M in assets. I will bite off as much as I can, then chew like crazy. Lots of fingers in lots of pies for me. Some will get burnt but as long as 80% of them are OK then i'm more than happy.


    T.