Discussion
Thinking of putting the house on the market and retiring with the other half to the Philippines.
Now the big question, can we afford it? On a back of a fag packet I've worked out that we'd have just over £500k left over once we've sold and I've allowed for initial expenses there.
So, how to invest this amount to give me a monthly return?
Now the big question, can we afford it? On a back of a fag packet I've worked out that we'd have just over £500k left over once we've sold and I've allowed for initial expenses there.
So, how to invest this amount to give me a monthly return?
UpTheIron said:
You are going to need to provide far more information to be able to get any sort of sensible response. For starters:
- how old are you and do you expect to have an average life expectancy?
- what sort of income do you require?
I'm 49, and have a 2 year old daughter and another on the way. Obviously we don't know what's around the corner but needless I'd like to leave as much to my kids as possible.- how old are you and do you expect to have an average life expectancy?
- what sort of income do you require?
Ideally I'd want to generate £2000 a month, whether that's realistic or not is another matter.
£2,000 a month is £24,000 a year, which on £500,000 equates to a 4.8% yield. To acheive that you'd need to invest in risk assets (i.e. shares) and evne then you'd probably fall short (a 3 to 4% yield is more realistic). Plus are you comfortable with taking that kind of risk with your life savings?
You alos need to understand the tax implications of moving to the Philippines, which will eat into any income you recieve.
As a previous poster suggested, you need to have a proper talk with someone rpofessional, you aren't going to get the answers you need on an online forum.
You alos need to understand the tax implications of moving to the Philippines, which will eat into any income you recieve.
As a previous poster suggested, you need to have a proper talk with someone rpofessional, you aren't going to get the answers you need on an online forum.
CaptainSensib1e said:
£2,000 a month is £24,000 a year, which on £500,000 equates to a 4.8% yield. To acheive that you'd need to invest in risk assets (i.e. shares) and evne then you'd probably fall short (a 3 to 4% yield is more realistic). Plus are you comfortable with taking that kind of risk with your life savings?
You alos need to understand the tax implications of moving to the Philippines, which will eat into any income you recieve.
As a previous poster suggested, you need to have a proper talk with someone rpofessional, you aren't going to get the answers you need on an online forum.
Thanks for your response, I'm quite aware of the need to get professional guidance but didn't see it mentioned previously.You alos need to understand the tax implications of moving to the Philippines, which will eat into any income you recieve.
As a previous poster suggested, you need to have a proper talk with someone rpofessional, you aren't going to get the answers you need on an online forum.
I'm also aware of a realistic figure and an ideal one, hence me mentioning it.
I'll ask my accountant about the tax implications, thanks
Interesting post.
Things to also consider are things like:
- property laws. I'm not sure what they are there but places like Thailand don't allow you to own property unless you're a citizen. Living in a city there isn't necessarily a cheap option.
- Education costs for your kids from now till 21.
- travel to/from UK for your kids to see family every year or 5 will take a chunk out of your pot.
- Costs of keeping yourself busy if you have fully retired need to be factored in.
I'm sure there is work there, maybe you could relocate and work rather than retire.
I assume that you've not chosen the Philipines on a whim.
Good luck!
Things to also consider are things like:
- property laws. I'm not sure what they are there but places like Thailand don't allow you to own property unless you're a citizen. Living in a city there isn't necessarily a cheap option.
- Education costs for your kids from now till 21.
- travel to/from UK for your kids to see family every year or 5 will take a chunk out of your pot.
- Costs of keeping yourself busy if you have fully retired need to be factored in.
I'm sure there is work there, maybe you could relocate and work rather than retire.
I assume that you've not chosen the Philipines on a whim.
Good luck!
SlackBladder said:
I'm 49, and have a 2 year old daughter and another on the way. Obviously we don't know what's around the corner but needless I'd like to leave as much to my kids as possible.
Ideally I'd want to generate £2000 a month, whether that's realistic or not is another matter.
You're very young to retire, so you need to be happy with a level of investment risk commensurate to a forty year investment window. I guess you should be looking at a safe withdrawl rate (different to expected rate of growth, which could be, relatively speaking, 'safely' achievable over the medium/long term if you target upwards of 4% or so) of c.3%. That's just gut instinct, maybe it could be a little less. Ideally I'd want to generate £2000 a month, whether that's realistic or not is another matter.
You have latitude with that, but if you want to bequeath as much as possible, it's a very good starting point in a discussion with your adviser. So, £500,000 ceding 3% per annum is £15000 per annum. Doesn't sound enough ('safely' speaking, does it?) but if you split your allowance with your wife, that should be tax free, depending on the local situation and where you get your income taxed. Bear in mind you're not tied to 3% per annum and your funds could feasibly do better than upwards of 4% or so - no reason why over the long term they won't - in principle).
But, you have to identify the strategy first.. get the big picture right, fine tune it if you need to, and then run with it. Don't let the tail wag the dog. Identify and nail the objectives first. Then work out the taxation situation, the cost of living etc. Then put in place the tactics (wrappers, funds etc).
I would be very wary of sequential return risk, too. This is the risk you get when there's no new money going into a pot and when you are *so* reliant on your £500k as you clearly will be. To explain, if you lose 10% in one month, and only recover the loss over five months, that's going to have a huge compounded implication on the size of your portfolio 'x' years down the line, which introduces in itself, all manner of implications on withdrawl patterns 'x+10' years down the line.
So, be very careful with fund choice.. it's like F1 - you don't win the race on the first bend, but you can certainly lose it there. For savers with more latitude, who are a little older, a state pension, ther income, no kids etc. it might not be as important. But your situation offers as many investment threats as it does opportunities to enjoy a great life. Good luck.
I think you need to reconsider, as inflation will have a massive impact over the next 40 years in your retirement. Your projections at 4.8% return on £500k, assume that your income will be a static £24k, including when you are in your 80s too. £24k now seems reasonable, but...
Based upon a modest 2% inflation rate, to maintain your lifestyle your pot would need to grow to £1.1M in 40 years time. So to stay static in lifestyle terms you would need to have a mechanism to more than double your £500k pot - you don't mention a vehicle to achieve this.
If you look at inflation in the UK over the last 40 years it is 4.8% per annum!
Depressing...
Mike
PS I hope I have understood your question correctly!
Based upon a modest 2% inflation rate, to maintain your lifestyle your pot would need to grow to £1.1M in 40 years time. So to stay static in lifestyle terms you would need to have a mechanism to more than double your £500k pot - you don't mention a vehicle to achieve this.
If you look at inflation in the UK over the last 40 years it is 4.8% per annum!
Depressing...
Mike
PS I hope I have understood your question correctly!
mike9009 said:
I think you need to reconsider, as inflation will have a massive impact over the next 40 years in your retirement. Your projections at 4.8% return on £500k, assume that your income will be a static £24k, including when you are in your 80s too. £24k now seems reasonable, but...
Based upon a modest 2% inflation rate, to maintain your lifestyle your pot would need to grow to £1.1M in 40 years time. So to stay static in lifestyle terms you would need to have a mechanism to more than double your £500k pot - you don't mention a vehicle to achieve this.
If you look at inflation in the UK over the last 40 years it is 4.8% per annum!
Depressing...
Mike
PS I hope I have understood your question correctly!
Inflation was my first thought as well. Your investments need to cover inflation otherwise the capital is being eroded every year, and the income need increases. Age 50 you could easily be looking at 25 -30 years left, possibly 40. 500k could be a couple of years average salary by then.Based upon a modest 2% inflation rate, to maintain your lifestyle your pot would need to grow to £1.1M in 40 years time. So to stay static in lifestyle terms you would need to have a mechanism to more than double your £500k pot - you don't mention a vehicle to achieve this.
If you look at inflation in the UK over the last 40 years it is 4.8% per annum!
Depressing...
Mike
PS I hope I have understood your question correctly!
Sustained inflation is certainly damaging but more recently, we have differentiated between expected and unexpected inflation. Sustained bouts of expected inflation can either be beneficial or harmful, but unexpected inflation seems to be predominantly beneficial. In smaller bursts. That said, a well diversified and balanced, well managed portfolio should, over the medium and longer term, be able to take into account and negate much of the harm that inflation can produce.
Ginge R said:
Sustained inflation is certainly damaging but more recently, we have differentiated between expected and unexpected inflation. Sustained bouts of expected inflation can either be beneficial or harmful, but unexpected inflation seems to be predominantly beneficial. In smaller bursts. That said, a well diversified and balanced, well managed portfolio should, over the medium and longer term, be able to take into account and negate much of the harm that inflation can produce.
HiCan you explain this further? I don't understand expected/ unexpected inflation and how it could be beneficial?
By my rough calcs you would need to maintain 6.8% return yoy on the investment to make it grow and maintain current lifestyle. If I could find an almost 7% low risk investment I would be amazed. (this assumes 2% inflation - and gross £2k monthly income today)
Thanks
Here you go, a small amount on it. Inflation can also be balanced or unbalanced.
https://www.thestreet.com/story/10993058/1/expecte...
I think, with the OPs scenario that looks as tight as it does, you'd have to model so many scenarios to cater for a forty year window, it'd be almost impossible to do any of them with certainty. For instance, you'd have to set aside a decent overseas emergency fund that counts against the model even further, but can you pad in state pension benefits (x 2)? Or one?
Currently, a safe withdrawl rate in our low growth, low inflation world also counts against the plan's chance of success. If we assume that Sovereign states may wish to deflate away debt via fiscal policies of financial repression, life could get very uncomfortable.
https://www.thestreet.com/story/10993058/1/expecte...
I think, with the OPs scenario that looks as tight as it does, you'd have to model so many scenarios to cater for a forty year window, it'd be almost impossible to do any of them with certainty. For instance, you'd have to set aside a decent overseas emergency fund that counts against the model even further, but can you pad in state pension benefits (x 2)? Or one?
Currently, a safe withdrawl rate in our low growth, low inflation world also counts against the plan's chance of success. If we assume that Sovereign states may wish to deflate away debt via fiscal policies of financial repression, life could get very uncomfortable.
Ginge R said:
Here you go, a small amount on it. Inflation can also be balanced or unbalanced.
https://www.thestreet.com/story/10993058/1/expecte...
I think, with the OPs scenario that looks as tight as it does, you'd have to model so many scenarios to cater for a forty year window, it'd be almost impossible to do any of them with certainty. For instance, you'd have to set aside a decent overseas emergency fund that counts against the model even further, but can you pad in state pension benefits (x 2)? Or one?
Currently, a safe withdrawl rate in our low growth, low inflation world also counts against the plan's chance of success. If we assume that Sovereign states may wish to deflate away debt via fiscal policies of financial repression, life could get very uncomfortable.
Thanks for the link Ginge. All slightly above my head though! https://www.thestreet.com/story/10993058/1/expecte...
I think, with the OPs scenario that looks as tight as it does, you'd have to model so many scenarios to cater for a forty year window, it'd be almost impossible to do any of them with certainty. For instance, you'd have to set aside a decent overseas emergency fund that counts against the model even further, but can you pad in state pension benefits (x 2)? Or one?
Currently, a safe withdrawl rate in our low growth, low inflation world also counts against the plan's chance of success. If we assume that Sovereign states may wish to deflate away debt via fiscal policies of financial repression, life could get very uncomfortable.
SELON said:
Interesting post.
Things to also consider are things like:
- property laws. I'm not sure what they are there but places like Thailand don't allow you to own property unless you're a citizen. Living in a city there isn't necessarily a cheap option.
- Education costs for your kids from now till 21.
- travel to/from UK for your kids to see family every year or 5 will take a chunk out of your pot.
- Costs of keeping yourself busy if you have fully retired need to be factored in.
I'm sure there is work there, maybe you could relocate and work rather than retire.
I assume that you've not chosen the Philipines on a whim.
Good luck!
We already have a property there, so no concerns on that front.Things to also consider are things like:
- property laws. I'm not sure what they are there but places like Thailand don't allow you to own property unless you're a citizen. Living in a city there isn't necessarily a cheap option.
- Education costs for your kids from now till 21.
- travel to/from UK for your kids to see family every year or 5 will take a chunk out of your pot.
- Costs of keeping yourself busy if you have fully retired need to be factored in.
I'm sure there is work there, maybe you could relocate and work rather than retire.
I assume that you've not chosen the Philipines on a whim.
Good luck!
Kids private schooling will come in at about £2000 a year, this will be an English school with a maximum class size of 10 pupils (one of the deciding factors of moving).
One option is to buy more property out there and live off the rental income, which will act as some sort of job as well.
Ginge R said:
You're very young to retire, so you need to be happy with a level of investment risk commensurate to a forty year investment window. I guess you should be looking at a safe withdrawl rate (different to expected rate of growth, which could be, relatively speaking, 'safely' achievable over the medium/long term if you target upwards of 4% or so) of c.3%. That's just gut instinct, maybe it could be a little less.
You have latitude with that, but if you want to bequeath as much as possible, it's a very good starting point in a discussion with your adviser. So, £500,000 ceding 3% per annum is £15000 per annum. Doesn't sound enough ('safely' speaking, does it?) but if you split your allowance with your wife, that should be tax free, depending on the local situation and where you get your income taxed. Bear in mind you're not tied to 3% per annum and your funds could feasibly do better than upwards of 4% or so - no reason why over the long term they won't - in principle).
But, you have to identify the strategy first.. get the big picture right, fine tune it if you need to, and then run with it. Don't let the tail wag the dog. Identify and nail the objectives first. Then work out the taxation situation, the cost of living etc. Then put in place the tactics (wrappers, funds etc).
I would be very wary of sequential return risk, too. This is the risk you get when there's no new money going into a pot and when you are *so* reliant on your £500k as you clearly will be. To explain, if you lose 10% in one month, and only recover the loss over five months, that's going to have a huge compounded implication on the size of your portfolio 'x' years down the line, which introduces in itself, all manner of implications on withdrawl patterns 'x+10' years down the line.
So, be very careful with fund choice.. it's like F1 - you don't win the race on the first bend, but you can certainly lose it there. For savers with more latitude, who are a little older, a state pension, ther income, no kids etc. it might not be as important. But your situation offers as many investment threats as it does opportunities to enjoy a great life. Good luck.
Thanks, that's an excellent response. I have a couple of private pensions which can be used to top up the pot if I take the 25% at 55 and hopefully the monthly income 5 years later will counter act the inflation issues.You have latitude with that, but if you want to bequeath as much as possible, it's a very good starting point in a discussion with your adviser. So, £500,000 ceding 3% per annum is £15000 per annum. Doesn't sound enough ('safely' speaking, does it?) but if you split your allowance with your wife, that should be tax free, depending on the local situation and where you get your income taxed. Bear in mind you're not tied to 3% per annum and your funds could feasibly do better than upwards of 4% or so - no reason why over the long term they won't - in principle).
But, you have to identify the strategy first.. get the big picture right, fine tune it if you need to, and then run with it. Don't let the tail wag the dog. Identify and nail the objectives first. Then work out the taxation situation, the cost of living etc. Then put in place the tactics (wrappers, funds etc).
I would be very wary of sequential return risk, too. This is the risk you get when there's no new money going into a pot and when you are *so* reliant on your £500k as you clearly will be. To explain, if you lose 10% in one month, and only recover the loss over five months, that's going to have a huge compounded implication on the size of your portfolio 'x' years down the line, which introduces in itself, all manner of implications on withdrawl patterns 'x+10' years down the line.
So, be very careful with fund choice.. it's like F1 - you don't win the race on the first bend, but you can certainly lose it there. For savers with more latitude, who are a little older, a state pension, ther income, no kids etc. it might not be as important. But your situation offers as many investment threats as it does opportunities to enjoy a great life. Good luck.
Good stuff. Measure twice, cut once. Don't be afraid to take qualified advice first (an initial consultation should be free) to get different and objective perspectives and/or call MAS and the Pensions Advisory Service for more info. Stress test the plan seriously aggressively and then, if you're happy with it, have a great, worry free retirement.
PS: stay current with evolving legislation.
PS: stay current with evolving legislation.
Ginge R said:
Sustained inflation is certainly damaging but more recently, we have differentiated between expected and unexpected inflation. Sustained bouts of expected inflation can either be beneficial or harmful, but unexpected inflation seems to be predominantly beneficial. In smaller bursts. That said, a well diversified and balanced, well managed portfolio should, over the medium and longer term, be able to take into account and negate much of the harm that inflation can produce.
Yes, Minister.Or as Donald Rumsfeld said,
"...there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones."
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