On Monday I wrote a post about ING’s Retirement Number Calculator … then I found this YouTube video showing their sponsored Georgia Marathon participants carrying their ‘Numbers’, presumably as a marketing ploy …
… I noticed something really interesting when I watched it. I wonder if you did, too?
What I noticed was that the Number for most people, was around $1,000,000 (and, the largest that I noticed was $1.8 million) … would this be enough for you?
Plugging those three Numbers ($1.3 mill. investing cash; $10 million ‘Number’; 14 years) into my favorite (because it’s the most simple!) Annual Compound Growth Rate Calculator over at Investopedia tell me that you need a 15% – 16% compound growth rate to reach your Number.
It’s pretty much a ‘gimme’ that you’ll get there if you manage to stay employed (earn enough to cover your living expenses and just do some low-risk investing with your current cash-on-hand i.e. buy/hold RE and Stock at current discounted valuations) … not a whole lot of borrowing/leverage/job stress required.
My financial advice: don’t do anything stupid 😉
Not even close. But I suppose a lot depends on (i) your anticipated/desired cost of living (ii) your life expectancy and (iii) the extent to which you anticipate relying on other sources like social security.
If I was a 20 year old student and content to live at the same standard of living I had in those days I would probably consider a number of around US$1MM enough. As I have got older, the number keeps going up as my lifestyle expands (marriage, children etc).
I noticed that too in the commercial a few days ago. I guess that would work if I wanted to be retired for around 10 years or so, then dust off the uniform and get back to work after that 😉
Those numbers won’t work for me. My Number is at $2.4 million and 12 years from now. Even my Number feels a bit low if I look at inflation and being 42 at that time, but I’ll probably still do some interesting investing projects after that.
That is nowhere near enough.
Like Charles, I’m 42, and I came with a number $3.2 million dollar number even using the standard online tools.
When I used Adrian’s method, I think I ended up adding a ‘1’ to the front.
The former value is easily within reach, the latter…. let’s call it a great ‘stretch’ goal.
I don’t think so. I don’t plan on sitting at home 4 to 6 night a week eating pizza and drinking the favorite soft drink of choice.
My plans would include at least a bit of travel each year, and I don’t see those numbers including much travel in the future.Unless,of course, that travel was by donkey.
@ Neil – Sorry 😛
It’s because the average American will get very depressed if you put up much bigger numbers. $1 million is 20 years of 50K savings per year, that’s probably the limit of many peoples imagination.
I’m 36 and have already got up to the savings level of someone who is 50 or 55… question is when do I want to take it easy and stop working for a while- or at least working make myself rich instead of JP Morgan, who owns the company I’m running! Clearly they are rich enough. I’m getting experience but need to realize I’d rather be the ‘taker’ than the ‘giver’ when it comes to driving profits!
@ Mike – Start by answering these questions:
1. What’s your Number?
2. What’s your Date?
4. What’s your Current Net Worth?
It may be that your presumably super-high salary (after all, you are running JP Morgan in your neck of the woods!) combined with an aggressive savings / investment strategy will do the trick …
… if not, well, let’s do some thinking about how to become the “profit taker” that you talk about!
Salary isn’t super high as the Asian branch of JP is pretty cheap- only $260K USD a year (base salary & guaranteed bonus)- max variable bonus on top of this is another $100K so it’s comfortable but not huge.
My number is abour 10 million- would like to hit it in the next 14 years or sooner.
Current net worth is 1.7M USD with $1.3 M in very liquid assets (cash…) Residence is fully owned and monthly burn rate is pretty low.
Right now my best option is to continue to get a successful track record (already turned around the business and changed it from major losses to modest profits) and maybe I can find a better gig.
Plugging those three numbers ($1.3 million investing cash; $10 million Number; 14 year Date) into my favorite Annual Compound Growth Rate Calculator tells me that you only need a 15% – 16% Annual Compound Growth Rate – a virtual ‘gimme’ – to get there.
This means: stay employed; buy/hold stocks and RE at current discounted valuations (start moving out of cash); don’t stress.
My financial advice? Don’t do anything stupid 😉
Sounds like a gimme to you but 15-16% each year seems like a tough goal.
I am looking at stocks and RE. For RE, it’s tough to find properties that are cash flowing right now… still have an eye open. Am starting to get into different stocks as well, taking my time though.
Great financial advice- will try not to do anything stupid!
@ Mike – Think about it: You can make ANY property cashflow positive (well, provided you can rent it!) by jiggling the amount of deposit you put in …
… buy commercial RE at, say, 50% down and sit on it for 14 years. Reinvest the excess cashflow (rent – mortgage – management fees – 25% provision for vacancies/repairs/etc.).
I’m pretty sure you’ll get close to what you need, particularly if you keep a tight reign on living costs and keep building more cash for more 50% deposits!
One question for you- right now property values are still such that if you can mortgage 100% (assuming you find the lender) you can get an interest rate for 4-6%… seems like interest rates can only move upward from here.
When interest rates move upward then getting a mortgage will be more expensive (10% interest upwards)… won’t the principle value of the property fall then as people who get in and are highly leveraged can afford less?
Isn’t that the time to put high cash deposits down on property, when interest rates are higher? Or have I got this logic wrong?
When mortgages rise over 10%, I would guess there would be some other good investments for your money, if you have it available.
Someone has to provide the cash to fuel the mortgages.
The big thing is not to be stuck having to take out a loan at 14% (like my dad did since Canada didn’t have 30-year fixed options).
@ Mike – The key for you is in two things:
1. Realize that your Required Annual Compound Growth Rate of 15% – 16% (which is well within the bounds of a long-term, conservative RE + Stocks investment strategy) INCREASES every year that you delay moving from 3% – 6% cash returns … simple math confirms this (you get to plug fewer and fewer years into the Compound Growth Rate Calculator), and
2. All you need to do to ensure these results (besides having a little ‘faith’ and making some reasonable investment selections that are only slightly on the ‘astute’ side of random) is to buy some cashflow positive property, which you can ‘manipulate’ in exactly the way that you suggest: i.e. take a mortgage. But, how much?
In the current low interest market, buying more property with lower deposits is ideal BUT only if you have the stomach to handle more property and/or debt AND if you can lock in to protect against future interest rate increases.
IMHO focus on positive cashflow, with a reasonable cash buffer (say, 25% if you can get it), and borrow to that extent and no more. Even this may be a challenge, so your question might be moot 😉
This is NOT the same advice that I would give to other people, as they are not in your position.
The alternative i.e. if you delay, will be to increase your income so that you can invest more at higher risk/returns later … now THAT seems high risk to me!
BTW: You have the comfort of knowing that the market is more likely to go up than down … and, if it does go down, it will be less ‘down’ than people investing in any other period since the last recession … so, your timing has to be regarded as better-than-random wouldn’t you say?
Good job; cash in the bank; low market; low interest rates: could the stars be any better aligned for you?
@ Neil – Are you suggesting ‘wraps’?
Thanks a lot for taking the time to answer my questions with great detail. You raise some compelling points.
Did there ever exist a day when it was possible to have a property cash flow positive with a scenario of mortgaging 100% of the value of the house? Ideally that’s the situation I look for, and the one I got when I bought my place in Asia- rent is $1500 per month, price paid was $175K, this was in 2005. Today this seems to be a hard to find deal.
Besides the last question, I have one other request- can you link in your posts on commercial real estate again, please? All my experience in valuing property has been in residential and I’d like to know the key difference in commercial- where I’ve always been the renter and not the landlord.
I added a search box (under the comments on the right-hand side) and you could just google-search the site (it’s what I do when people as me for back-posts); but, these are the posts that you want:
http://7million7years.com/2009/01/05/anatomy-of-a-commercial-re-investment-part-3/ (follow the back-links for the earlier parts)
These are two such important / good (in my humble opinion) posts that I might put them in e-book form.
Thanks for posting these links and adding the search feature. Very helpful!
Did you end up inking that $2.5 M deal or not?
Have you been able to find properties that can ‘positively cash flow’ even with theoretical calculation of putting 100% down (realize banks don’t do this anymore)?
Did you ever study Japan’s commercial property market during their lost decade of the ’90’s? I am a little concerned about being in a commercial deflationary environment (for example- I negotiated a 10% rent reduction from my landlord for the company I run, saves us $6500 per month!) I know you mentioned that CRE is less volatile than residential but this still worries me a bit.
You’ve opened my eyes… now I need to find and make friends with a logical, clear thinking broker!
@ Mike – Commercial real-estate boils down – eventually – to the economy: if businesses are failing, so will commercial RE. Residential is more ‘bubbly’ but is ultimately driven by accommodation needs v scarcity (real in the long-term or perceived in the short-term). Invest in either … wherever you feel most comfortable 🙂
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