Читать книгу The Global Expatriate's Guide to Investing - Hallam Andrew - Страница 15

Whether you expect to retire on $25,000 or $125,000 per year, you'll need a way to generate that income. Some will earn money from real estate rentals; others will rely on the stock and bond markets. Many will depend on both. Retirees may also receive some kind of pensionable benefit to augment their investment income.

Rental real estate is a great inflation fighter. If a retiree collects enough rental revenue to cover life's expenses today, it won't be undermined by the rising cost of living. Over time, rental income and inflation ride the same chair lift.

Those paying off investment mortgages before retirement can reap much from the rental proceeds.

Stock and bond market investments work a bit differently. If a retiree has a $500,000 investment portfolio, she'll need to know how much of her portfolio she can afford to sell each year. Those selling too much could end up broke – especially if they live longer than expected.

World Health Organization director Ties Boerma suggests a typical 60-year-old in a high-income country could expect to live to 84. But you could live even longer – perhaps much longer.19

Costs of living also increase. So what percentage of your retirement portfolio can you afford to sell each year, to provide high odds you'll never run out of money?

How to Never Run Out of Money

Respected financial planner and researcher Bill Bengen suggests that retirees should be able to sell roughly 4 percent of their investment portfolios each year. He back-tested a variety of historical scenarios, reporting results in a 1994 Journal of Financial Planning issue.20

As such, 4 percent of $500,000 would be $20,000; 4 percent of a million dollars would be $40,000. If you retired today with one million dollars, you could withdraw $40,000 in the first year of retirement. In the second year, you could sell a bit more to cover rising costs of living. The 4 percent withdrawal rate considers inflation.

If inflation averaged 3.5 percent per year, Table 2.1 is how withdrawals would look for the first 15 years of retirement.

Table 2.1 Four Percent Withdrawal Rate for $1 Million Portfolio with Inflation at 3.5 Percent per Year

Some say withdrawing 4 percent after inflation may prove to be too much. Skeptics of the 4 percent rule include Michael S. Finke, Wade D. Pfau, and David M. Blanchett. In a 2013 Social Science Research Network paper, they recommend sustainable postinflation withdrawal rates closer to 3 percent (see Table 2.2). Their rationale? Interest rates for bonds and savings accounts are currently lower than usual.21

Table 2.2 Three Percent Withdrawal Rate for $1 Million Portfolio with Inflation at 3.5 Percent per Year

Don't, however, let that spook you. Interest rates might not perpetually scrape along the sea floor. Researchers supporting the sustainability of a 4 percent withdrawal rate considered a variety of back-tested conditions: double-digit inflation in the late 1970s and early 1980s, stock market returns that went essentially nowhere (for the U.S. market) between 1965 and 1982, and a series of American-led wars.

That said, there's nothing wrong with a 3 percent withdrawal rate. When it comes to money, caution is cool.

By the end of this chapter you'll be able to determine how much money you'll need to retire. You'll also know how much money you should be investing each year to reach your goal. Meet some expats who figured it out.

The Man with Nothing But a Backpack

Profile 1: Lindell Lucy

Nationality: American

Residency: Hong Kong

Current Age: 29

Plans to Retire in: 41 years (at age 70)

Retirement Income Goal: $40,000 (U.S. dollars) per year

Postinflation Retirement Income Goal: $163,917 per year

Combined Investments in Stock/Bond Markets: $18,500

Current Real Estate Income: $0

Twenty-nine-year-old Lindell Lucy claims to own nothing but a backpack. The Arkansas-raised American went to Stanford University before catching wanderlust. “After leaving university, there was one six-month period,” he says, “when I lived on the streets in five different countries – Japan, South Korea, China, Hong Kong, and Taiwan.” He taught part-time while traveling, earning just enough money for food and shelter.

His entrepreneurial spirit led to a few additional work projects. One was spawned by his trouble finding adequately priced gyms to use while traveling. “Day passes are outrageously expensive,” he says. He created Gymsurfer.com, a social network and marketplace for gyms. “I wanted to make it easy for people to find gyms and compare prices, which I hoped would spur competition and drive down prices [for day passes]. I also wanted to make it possible for people to meet at gyms, socialize, and stay in touch.”

He also started a few writing projects before settling into his current job as a kindergarten teacher. “I ran out of money a few times on my travels and had to get bailed out by family. That was part of the reason I decided to get a full-time job in Hong Kong.”

Lindell says he could live on $6,000 (U.S.) a year in rural China. But a couple of years ago, he was bit by something stronger than his lust to wander. He met his girlfriend Yan, who worked as a music teacher. She changed schools shortly after they met and Lindell followed her. He jokes about never retiring. “My body will wear out long before then.” But he admits, “Retirement planning is a good thing.”

Lindell figures he could retire at 70 on a shoestring, but that wouldn't please Yan. “She'll want some money to enjoy a more comfortable lifestyle than I could tolerate,” he says, “so we'll probably need about $40,000 a year.”2223 Based on calculations described in Chapter 1, Lindell would be spending $163,913 per year upon retirement, if he wants the same buying power that $40,000 would purchase today – assuming annual inflation of 3.5 percent.

Lindell won't be eligible for a defined benefit pension or U.S. Social Security if he remains overseas. Nor does he plan to purchase real estate for income purposes. So determining how much money he needs in a retirement portfolio is simple. The $163,913 he hopes to spend each year upon retirement must be 4 percent of a much larger sum. Studies suggest retirees can sell 4 percent of their portfolio each year without running out of money. In Lindell's case, $163,913 is 4 percent of $4,097,825.

To figure that out, he could do one of two things: multiply $163,913 by 25 or divide $163,913 by 0.04.

It looks like a massive sum. But Lindell and Yan can reach it.

So far, they've accumulated $18,500 (U.S.) in an investment account. If they work 41 more years, they could reach their retirement portfolio goal size by investing $16,555 per year in the account, if their investments average 7 percent (see Figure 2.1).

Figure 2.1 Determining How Much Lindell and Yan Need to Save

SOURCE: www.moneychimp.com.

Lindell and Yan can't control the stock market's return. It could earn more than 7 percent or it could earn less. Using the same Moneychimp.com compound interest calculator, Table 2.3 shows how much they would need to invest per year and per month, based on different stock and bond market scenarios.

Table 2.3 How Much Would Lindell and Yan Need to Save?

So what investment return should Lindell and Yan bank on? Nobody knows. Historically, stock and bond market combinations have exceeded 8 percent annually: not every year, but during most 30-year durations. Prudence suggests it's better to expect lower than average returns.

But what if real estate were part of your investment plan? And what if (unlike Lindell) you'll receive some kind of government retirement payment or a defined benefit pension? How do such calculations apply then? Meet Keith Ferrell and Annika Dahlgren-Ferrell.

The Couple with Swedish-American Dreams

Profile 2: Keith Ferrell and Annika Dahlgren-Ferrell

Nationality: American/Swedish-American

Plan to Retire in: 10 years

Retirement Income Goal: $75,000 (U.S. dollars) per year Postinflation Retirement Income Goal: $105,794 per year

Combined Investments in Stock/Bond Markets: $300,000

Current Real Estate Income (not including future primary residence): $25,000 per year

Keith and Annika met in 1994 while attending San Diego State University. They married in 1999, after teaching a handful of years in the United States. Seeking adventure and more disposable income, they moved to Venezuela, where they taught for two years. “When we first arrived,” says Annika, “the school administrator handed us an envelope with a large lump of cash as a ‘settling in’ allowance. It reminded us of a Mafia payment.”

“We've always been careful with money,” says Keith. By the time they were in their early 30s, they had a completely paid off home in California. Moving to Singapore juiced their savings. Today Keith, aged 42, and Annika, 39, own three California homes. Two are completely paid off, and the third has $78,000 owed on the mortgage. “We'll definitely have the third house paid off before we retire,” says Annika. They each enjoy their Singapore teaching jobs, but would like the option of retiring in 10 years. “We'll probably keep working,” says Keith, “but if we decide to quit in a decade, we want the resources to do that.”

Besides his teaching salary, Keith plans to tutor. He'll file the additional money as self-employed income reportable to the U.S. Internal Revenue Service (IRS). Doing so allows him to earn Social Security credits, ensuring he's eligible for a smidge of government retirement income. He's not counting on it, however, preferring that he and Annika be fully self-sustaining.

From 2006 to 2013, they lived in Singapore on a single salary. Annika gave birth to their two children, Kaidan and Kiana (ages 6 and 8), after which Annika stayed home to raise them. Even on a single salary, the couple still saved for their retirement. They also started a healthy college fund for their kids.

19

“Global Life Expectancy: Life Spans Continue to Lengthen around the World, WHO Says,” Huffington Post/Reuters, May 15, 2013. Accessed April 30, 2014. www.huffingtonpost.com/2013/05/15/global-life-expectancy-span-world_n_3281211.html.

20

William P. Barrett, “The Retirement Spending Solution,” Forbes, April 5, 2011. Accessed April 30, 2014. www.forbes.com/forbes/2011/0523/investing-retirement-bill-bengen-savings-spending-solution.html.

21

Michael S. Finke, Wade D. Pfau, and David M. Blanchett, “The 4 Percent Rule Is Not Safe in a Low-Yield World,” Journal of Financial Planning 26(6): 46–55; Social Science Research Network. Accessed April 30, 2014. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2201323.

22

Interview with Lindell Lucy. E-mail interview by author, June 20, 2013.

23

Interview with Keith Ferrell and Annika Dahlgren-Ferrell. Telephone interview by author, April 30, 2014.