Have you enough investment wealth to support your desired lifestyle spending?


Have you enough investment wealth to support your desired lifestyle spending?How many years of spending can your Investment Wealth support?

This is our third article in a series of six that examines the rationale for each chart included on a client’s Personal Financial Dashboard – a graphic format that succinctly captures the journey to, arrival at and maintenance of financial independence.

Last time, we considered the logic behind the “Investment Wealth Ratio” (“IWR”). It looked at the proportion of total wealth held in investment wealth as opposed to lifestyle assets. An IWR above 55% indicated that wealth was not unduly weighted to lifestyle assets and that future hard choices between maintaining lifestyle and/or selling desired lifestyle assets would, most likely, be avoided.

But an above benchmark IWR is not itself enough for financial independence. A critical refinement is to also directly examine how many years of desired lifestyle spending can be supported by current net investment wealth. We call this ratio the “Retirement Expenditure Multiple” (“REM”). It could just as easily be called the “Financial Independence Expenditure Multiple”.

Click Here To Read More

The Reality of Lifetime Annuities in Australia

The Reality of Lifetime Annuities in AustraliaLifetime Annuities: good product, immature market

If you’re looking for a way to outsource your investment, longevity and inflation risks, you’re in luck. There is a financial product (a lifetime (indexed) annuity) that allows you to achieve this aim. However, the market for these products in Australia is quite immature, which is not good news for purchasers.

The lifetime annuity market in Australia has been around for many years, yet its size has never been significant. In 2001, 1,927 lifetime annuities were sold for a total value of $166 million. By 2004, this had increased to 2,801 annuities worth $281 million.

Click Here To Read More

What will you spend in retirement?

What will you spend in retirement?Retirement spending estimation is more than a financial exercise

In a previous article, “What is an appropriate Retirement Expenditure Multiple?”, we suggested that a figure of 25 times your desired retirement spending is a good rough guide to how much investment wealth you need to accumulate to be able to support your desired retirement lifestyle indefinitely or for financial independence.

Of course, the usefulness of this proposition depends on having some idea of what you want to spend in retirement. The reality is many pre-retirees don’t know what they are spending now and have given little thought to the cost of their hazy view of retirement. Multiplying a poorly considered view of retirement expenditure by 25 will result in a poorly considered view of how much you need to support that expenditure.

Click Here To Read More

What is an appropriate Retirement Expenditure Multiple?

What is an appropriate Retirement Expenditure Multiple?

Some suggest a retirement expenditure multiple as low as 12 …

When clients ask us how much wealth they need to accumulate to ensure a high chance of meeting their retirement income needs, we suggest that a figure of 25 times their desired retirement expenditure is a good rough guide i.e. a retirement expenditure multiple (or “REM”) of 25. So, if you would like to be able to spend $150,000 p.a. in retirement in today’s dollars for an indefinite period, the multiple suggests investment wealth (i.e. excluding your residence and other lifestyle assets) of about $3.75 million is required.

Click Here To Read More

How does your “Personal Financial Scorecard” look?

How does your “Personal Financial Scorecard” look?

A picture paints a thousand words…

Our recent article, “What is “The Value of Financial Planning”?”, introduced a number of key metrics that we monitor to assess clients’ progress toward meeting their financial objectives. Together with some additional important measures, a “Personal Financial Scorecard” can be created for each client.

This Scorecard succinctly captures financial progress and highlights strengths and weaknesses in a client’s current situation. It’s easy to see whether a client is on track to achieve their desired financial future and what steps they need to take to enhance their financial position.

Click Here To Read More