general investment strategy for retirement

Hi all

Theoretically, if one is close to retirement and has accumulated a fair sum in a low cost industry super fund - say 1 million - and can live off the minimum drawdown of 4% when taking allocated pension

and presuming that markets recover reasonably well, or at least say over 20-30 years the overall growth is similar to what's been seen before

is this ok as something to aim for?
What are the potential disadvantages of an allocated pension?
Can there be better approaches to investing the money?
Any hints as to what might be a better approach

Many thanks for any answers

 

It seems o.k to me if you wish to be quite conservative. But I'd be investing at least half of this $1mil surplus of funds as it would be simply lazing away with no leverage in the mean time. You could quite easily triple your money over that 20 year period if you were prepared to educate yourself on finance and investing.

There are many ways you 'could' use this cash to make more and everyone will suggest something different but if you were me, I'd keep a buffer (however much makes you feel safe and secure) and invest the rest in sound assets. I want my money to be working harder than I can or could to earn it in the first place and use tax sheltering methods to further add to that snowballing amount.

In all the asset classes I've ever looked in to, property is by far the best way (for me) to create wealth. Simply no other asset class can give me what I get in return from resi property alone.

 

Over the very long term 30+ years this might be a reasonable assumption, but I personally think when it comes to planning for retirement, it's more prudent to not assume overly optimistic future growth rate figures.

A low cost and highly diversified asset portfolio is the safest option, so a good spread between cash, stocks, property and commodities would normally fit the bill.

If by "better" you are implying higher growth, then it's almost certain that this will be accompanied by higher risk.

Wealth Creator I sent you a Private Message in response to these comments rather than posting them publicly here.

 

Yes I saw

I'll post them here for you.

 

Hey man!

All I can say is:
I stand by what I've said in the post you're referring to. And thats what I would do, personally.

At the end of the day it's each to their own. There will indeed be good times in investing as there will also be bad times. Fact.

If I didn't want to lose the shirt off my back then I might just purchase one property. What if that property purchased in metro Melbourne, lets say St Kilda only inflated annually by 3% inflation tracking?

We'd only be a little better off 20 years down the track.

But what happens if that property purchased for $500k with 10% deposit (only used around $70,000 of our $1mil to remain very safe but at least doing something increased by 7%p/a over twenty years?

I'll tell you what would happen.
You would have made $1,434,841 profit of your $70,000 outlay. Theres your outcome.



Quote:
Originally Posted by Chris C
Hi Wealth Creator,

I just wanted to send this to you privately, because I'm a bit critical of your strategy, and I didn't want to do it publicly, because I know you're new to the forums.

Quote:
Originally Posted by wealth_creator View Post
It seems o.k to me if you wish to be quite conservative. But I'd be investing at least half of this $1mil surplus of funds as it would be simply lazing away with no leverage in the mean time.
You should be extremely careful recommending people use "leverage" as they are entering their retirement years. They aren't 28 like you, so they can't afford to lose everything then pick themselves up and start for scratch.

You might like to speak to some storm financial investors who were approaching retirement or were already in it... they are now shirtless precisely because they used a leveraged strategy.



Quote:
You could quite easily triple your money over that 20 year period if you were prepared to educate yourself on finance and investing.
Nothing is "quite easy" or guaranteed when it comes to making money and investing.

On the other hand, I personally have learned the hard way that it is "quite easy" to think of oneself as an informed and educated individual after reading a few investment books, subscribing to money mag, API, making a few paper profits in stocks and investment properties.

Of course my real learning took place not when I was winning, but when I was failing, and a desire to understand why, and what I learnt was despite my book reading, investment seminars, subscriptions to expert pundits, degree in economics, experience running a business, investing shares and property was what I knew barely scratched the surface of "understanding", and probably never will.

Quote:
I want my money to be working harder than I can or could to earn it in the first place and use tax sheltering methods to further add to that snowballing amount. In all the asset classes I've ever looked in to, property is by far the best way (for me) to create wealth. Simply no other asset class can give me what I get in return from resi property alone.
Can your investing strategy be applied to every single person in Australia? As in what happens to your method if we all heavily leverage ourselves into 4 or 5 residential investment properties?

(after all it's a sure thing over the long term and the people that aren't doing it are mugs right?)

So in this scenario, does your logic and system still stack up? do we all still come out wealthy winners?

 

No offence intended and I respect you personal thoughts, but we also must respect mine just as much.

It gets me to my goal as I'm sure your strategy does also, we just have different goals and time-frames, thats all.

Good day.

 

I have started a new thread on this topic, so we can discuss the issue, rather than us hijacking GG's thread:

http://www.invested.com.au/85/leverage-strategy-37587/

 

GG,
I am not a licensed financial planner (read product salesman - for most part) so I will not touch your share investment strategy. One issue I have with FP's is that largely they do not include real property in their asset selection platform.

I would give thought to a self managed super fund (SMSF) while you are still working and with $1m in assets, look at real property as a mix (not the entirety) and include medium leveraging, perhaps 50 to 60% borrowings.

You could consider commercial property and/or residential property, returning a rent yield of 8% and 4.4% respectively. It adds some diversification to the share and fixed interest assets you will already have. With current super laws you can draw down lump sums whenever you wish after retirement.

Just an option.
Greg

 

GG, personally I would not be looking at other investments except within super environment. Reason being your pension income stream would be tax-free (assuming you have met the condition of release).

Any income outside super (pension) would be taxable at your marginal tax rate.

The trick is to juggle the asset allocation within the pension to suit your risk profile.

Btw, is it going to be allocated pension or account based pension? There is a difference between the two.

 

Differences between Allocated Pension and Account Based Pension?

Only minor and the names are interchangeable and everybody knows they are essentially the same product.

Allocated Pensions are "older" they use Pension Valuation Factors (PVFs) which had Minimum and Maximum drawdowns based on the members age.

Account Based Pensions are "newer" they use age based minimum drawdowns and have no maximum drawdowns unless the pensions are started while the member drawdown is under age 65 and still working the maximum is 10% of the balance pa (ie, Transition to Retirement).

Cheers,

Dan

 

$1M to retire on

I'd suggest starting with working out what sort of lifestyle you want in retirement and working out through a budgeting process what amount of annual income will be required to support these goals.

Through a projection based on some assumptions such as the rising cost of living over retirement, lump sum capital needs (e.g new cars etc) it will then be possible to work out what sort of return you will need on the $1M to supply the required income.

You will also need to take into account expected social security (aged pension) that is likely to be received.

Once you know the return you need, you will be in a position to decide what an appropriate mix of investments might be.

An account based pension (industry fund or otherwise) is likely to be a suitable vehicle for your needs but a whole lot of other considerations such as estate planning complexities, investment preferences, flexibility required, overall advice needs etc need to be considered to put this decision into context.

Note that industry funds offer cheap fees and very basic products. When buying something to last decades, flexibility is handy. Also note that it is possible with commissions stripped out to get much more flexible products (and better built) at cheaper costs in the commercial sector if you know where to look.

I'd strongly suggest you find a non-aligned financial planner who operates on a pure fee for service basis and discuss your needs.

Regards

Jason Bragger
Brisbane Financial Planners | Financial Advice | Financial Advisor

Note this is general advice only and does not take into account individual circumstances. You should seek advice from a licensed profession before acting.