Is a million enough for early retirement?

BritishInvestor

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

SouthCoastBoy said:

Currency risk is relevant as global equities base currency will potentially be in a different currency therefore currency fluctuations matter, for example if you are selling units where a large part of the fund is us equities and dollar goes from $1 to the pound to $2 to the pound and the underlying asset is valued at $10 rather than receiving £10 you would receive £5.

But we're talking a multi-decade retirement (hence short/medium term currency fluctuations aren't a major factor (or haven't been historically) in determining SWR), and also not forgetting the bond part of the portfolio is (typically) hedged.
I would suggest currency volatility is second-order vs equity volatility. 

Vanguard Global Bond Index Hedged Accumulation (around 20% of VLS 60) has returned just 11.75% over the past 5 years (1.34% over 1 year). Likewise Vanguard Funds plc Global Aggregate Bond UCITS ETF GBP H Accumulation which has a much shorter history just 1.78% over the past 12 months. 

£ has already recovered 17% in just 3 months since it's low point in December 2020. Currencies I suspect are far more volatile than you realise. 

"Vanguard Global Bond Index Hedged Accumulation (around 20% of VLS 60) has returned just 11.75% over the past 5 years (1.34% over 1 year). Likewise Vanguard Funds plc Global Aggregate Bond UCITS ETF GBP H Accumulation which has a much shorter history just 1.78% over the past 12 months"
I'm not sure what this is in reply to?
"£ has already recovered 17% in just 3 months since it's low point in December 2020."
Can I please double-check what that is in relation to?

•  not forgetting the bond part of the portfolio is (typically) hedged.

• I would suggest currency volatility is second-order vs equity volatility. 

I'm therefore not sure what bond returns have to do with the point I was making? Perhaps I'm being slow....

ratechaser

zagfles said:

GunJack said:

zagfles said:

You want zero risk and have bought a rental apartment?? Property prices can and do go down, on average property prices are lower now in real terms than 15 years ago, and that's just the overall average, with a single property it could be much worse due to the local market, or much better of course, but certainly more risk owning just a single property, 

However, isn't boston living in the US? Where rentals seem to be far more stable & common than in the UK?

Don't know, this is UK forum so I'd assumed he/she was in the UK. Mind you it was US property price plummets that led to the global financial crisis!

Well actually it was massive irresponsible lending/borrowing, followed by systemic and wilful mismanagement of the risk underlying that borrowing that caused the crisis.

The fall in house prices, as well as the collapse of my employer at the time, were 'just' consequences of this... 

Thrugelmir

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

BritishInvestor said:

SouthCoastBoy said:

Currency risk is relevant as global equities base currency will potentially be in a different currency therefore currency fluctuations matter, for example if you are selling units where a large part of the fund is us equities and dollar goes from $1 to the pound to $2 to the pound and the underlying asset is valued at $10 rather than receiving £10 you would receive £5.

But we're talking a multi-decade retirement (hence short/medium term currency fluctuations aren't a major factor (or haven't been historically) in determining SWR), and also not forgetting the bond part of the portfolio is (typically) hedged.
I would suggest currency volatility is second-order vs equity volatility. 

Vanguard Global Bond Index Hedged Accumulation (around 20% of VLS 60) has returned just 11.75% over the past 5 years (1.34% over 1 year). Likewise Vanguard Funds plc Global Aggregate Bond UCITS ETF GBP H Accumulation which has a much shorter history just 1.78% over the past 12 months. 

£ has already recovered 17% in just 3 months since it's low point in December 2020. Currencies I suspect are far more volatile than you realise. 

"Vanguard Global Bond Index Hedged Accumulation (around 20% of VLS 60) has returned just 11.75% over the past 5 years (1.34% over 1 year). Likewise Vanguard Funds plc Global Aggregate Bond UCITS ETF GBP H Accumulation which has a much shorter history just 1.78% over the past 12 months"
I'm not sure what this is in reply to?
"£ has already recovered 17% in just 3 months since it's low point in December 2020."
Can I please double-check what that is in relation to?

•  not forgetting the bond part of the portfolio is (typically) hedged.

• I would suggest currency volatility is second-order vs equity volatility. 

I'm therefore not sure what bond returns have to do with the point I was making? Perhaps I'm being slow....

Seems that our approaches to investing are somewhat different. 

bostonerimus

ErinGoBrath said:

zagfles said:

GunJack said:

zagfles said:

You want zero risk and have bought a rental apartment?? Property prices can and do go down, on average property prices are lower now in real terms than 15 years ago, and that's just the overall average, with a single property it could be much worse due to the local market, or much better of course, but certainly more risk owning just a single property, 

However, isn't boston living in the US? Where rentals seem to be far more stable & common than in the UK?

Don't know, this is UK forum so I'd assumed he/she was in the UK. Mind you it was US property price plummets that led to the global financial crisis!

Maybe it is Boston, Lincolnshire?

I've been there, but I live in Boston MA. Housing and rents are expensive in Boston and there wasn't the speculative borrowing and building that happened in places like Florida and cause the 2008 crash. My house price did dip, but quickly recovered and of course the rent was not affected. As with so many investments, property should be considered over the long term and of course you need to be intelligent in what you buy. But in times of low interest rates an income property does offer the chance of getting a decent return on your investment with current income and capital appreciation. The costs must be considered, along with the responsibilities of being a landlord, but it is a nice diversifier in a financial portfolio so that income comes from various sources. If I was going into retirement and had a million to invest would I buy a flat - probably not without previous experience as a landlord and even then taking on a mortgage or locking up capital wouldn't be attractive. But if you add a rental to your portfolio well before you retire it can pay big dividends in income and capital appreciation when you actually stop working.

bostonerimus

Mickey666 said:

shinytop said:

I think having a zero balance just as you take your last breath counts as sustainable.  All returns and capital gone.  Not sustainable is having zero while still alive and having bills to pay.

Ah, ok, slightly different definition to mine but I totally get your point.  Based on that definition, then £1m should be able to provide significantly more than £40k per year based on 8% growth and 3% inflation as suggested, though much depends on longevity - which is often the hardest part of the equation to judge.

Projections and models give an idea of the potential course of our retirement finances, but we only know the reality when we are living it. Things will change; markets will crash and recover; pipes might burst; you might need to buy a new car and pay for long term care in a retirement home etc etc. So contingency and flexibility have to be built into how you manage your million pound nest egg. Many people will keep 5% or 10% in cash for emergencies and spending in multiple year market down turns, but this then reduces the amount of money you can actively invest. It's essential to think about the possible ways your SWR plan could fail and what you would do. When everyone bought an annuity with their million pounds this wasn't really necessary, but now it is and being a bit pessimistic isn't a lot of fun, but it's useful when planning for retirement.

zagfles

ratechaser said:

zagfles said:

GunJack said:

zagfles said:

You want zero risk and have bought a rental apartment?? Property prices can and do go down, on average property prices are lower now in real terms than 15 years ago, and that's just the overall average, with a single property it could be much worse due to the local market, or much better of course, but certainly more risk owning just a single property, 

However, isn't boston living in the US? Where rentals seem to be far more stable & common than in the UK?

Don't know, this is UK forum so I'd assumed he/she was in the UK. Mind you it was US property price plummets that led to the global financial crisis!

Well actually it was massive irresponsible lending/borrowing, followed by systemic and wilful mismanagement of the risk underlying that borrowing that caused the crisis.

The fall in house prices, as well as the collapse of my employer at the time, were 'just' consequences of this... 

Well, yes, it was basically collateralised mortgages that were assessed as almost zero risk because loans secured on property are low risk aren't they, because property prices always rise don't they? Have people learnt the lesson yet?

Secret2ndAccount

I have one buy-to-let. I paid £108k for it in 2003. Now it's worth about 250k. There will be a bit of tax to pay when I sell it. I make that about 4.8% compound annual return. There have been a few gaps in rent - about six months out of 18 years. My records aren't perfect back to the beginning, but I'm estimating an average of 4.5% rental return. Lower at the moment as I haven't raised the rent in line with the property value. I started out using an agent as I was living abroad. Then I moved back to UK. Shortly after, agent morphed from competent into idiot. So now I manage it myself. Hasn't ever been an onerous task. I had a small mortgage to buy the place, and have literally made money on that.

So I've bought a 'single stock', had 4.5% cap growth, 4.5% dividend and much less volatility than most stocks.

I bought the place because I felt it was a very good price - like buying a stock during a market crash. Wouldn't necessarily recommend BTL these days as the government appears to be against it, but I certainly can't complain, and it's provided some useful diversification.

bostonerimus

Secret2ndAccount said:

I have one buy-to-let. I paid £108k for it in 2003. Now it's worth about 250k. There will be a bit of tax to pay when I sell it. I make that about 4.8% compound annual return. There have been a few gaps in rent - about six months out of 18 years. My records aren't perfect back to the beginning, but I'm estimating an average of 4.5% rental return. Lower at the moment as I haven't raised the rent in line with the property value. I started out using an agent as I was living abroad. Then I moved back to UK. Shortly after, agent morphed from competent into idiot. So now I manage it myself. Hasn't ever been an onerous task. I had a small mortgage to buy the place, and have literally made money on that.

So I've bought a 'single stock', had 4.5% cap growth, 4.5% dividend and much less volatility than most stocks.

I bought the place because I felt it was a very good price - like buying a stock during a market crash. Wouldn't necessarily recommend BTL these days as the government appears to be against it, but I certainly can't complain, and it's provided some useful diversification.

That's almost exactly my experience too. I haven't raised the rent in line with the increase in the value of the flat either. In fact I make a point to never raise the rent on a tenant and to keep it a bit below the market rate so that I'm not contributing to the ridiculous inflation in Boston rental rates.

Rich2808

Surely it depends on your spending habits.
Some people could make £1m last 30 years - others could spend that in a month!

Billy_B_North

I think that you have a pretty sensible and decent plan. Few plans survive contact with reality intact, so it will very likely need to be tweaked along the way. As long as you are pro-active in this, and don’t let things slip I think you’re absolutely on the right track.

You do need to remember that life’s surprises bring expenses more often than windfalls, so factor in the odd setback along the way. Also keep one eye on the possibility that you may wish to work for longer; it’s a gamble to live an austere life while young if it turns out you could have enjoyed yourself a little more but still retired with a healthy pot.