At the age of 19 I decided that I wanted to be rich and that meant being a millionaire. It took nine years to achieve the goals and I only discovered it by accident. I was filling out an application form for a loan and realized that my assets minus my current liabilities equaled just over one million dollars. At that point I thought I had it made. I mean being a millionaire was the peak in wealth wasn’t it? It was what everyone wanted to be?
The very first book I wrote was called “It’s Easy to Be a Property Millionaire” and it sold in the tens of thousands, so I guess a lot of people just like me were out there all striving to become a millionaire. It was presumably because they wanted a better life and that number – a million dollars, seemed to be the magical goal, once reached, would guarantee the life of your dreams.
The book was written 16 years ago and a million doesn’t buy much anymore. In Sydney, it will buy you a median priced house near the city. There must be tens of thousands of people who are millionaires, simply by virtue of buying a single home in a nice neighbourhood somewhere near the city about 30 years ago. These homes are now likely worth well over a million dollars and in most cases the owners will have paid off the loan on this home over that 30 year period.
That’s great – it’s a solid foundation of wealth. Yet living in your own home won’t earn you an income to live on when you finish working for a living. That same “home millionaire” would probably need to sell their home and downsize, putting any spare change in the bank to earn some income to live on after finishing work. Unless of course they had other savings or investments.
Maybe you think you are too young to be planning out for your life after you finished work, or maybe you are closer to stopping work than you want to be? Either way it needs to be front and center in your mind, otherwise your only choice might be to exist on the pension pittance. That is of course if future governments can afford to pay you one.
So, is a million dollars enough to retire on?
That is really an interesting question. It depends on a couple of factors. Firstly, on the type of lifestyle you want to lead after you finish work and begin what I call your “living years.” And secondly on the rate of return you can earn on your investments, which governs the amount of income you can generate.
If you choose to live a “modest” lifestyle – perhaps going out once a week to a cheap and cheerful restaurant, maybe visit the cinema everyone so often and a local holiday once a year, a couple will need an income of about $34,000, according to the ASFA retirement calculator, December quarter 2015. If you want a bit more than the modest lifestyle and feel you want to live comfortably – say an annual overseas holiday, health insurance and decent quality restaurants, then a couple will need an income of about $59,000.
So if the couple had a million dollars – that is cash or assets, not including the family home – then to achieve a modest lifestyle and maintain the million dollars in capital, they would need to earn a 3.4% after tax return each year – so that would be about 4-4.5% gross. For the comfortable lifestyle, a 5.9% after tax return is required, so that would equate to about 7%.
So this is bad news on several fronts. First – you will need to own your own home plus the million dollars. Second, you will need to have your cash assets working harder than simply putting it in the bank to earn anywhere from 0.1% to about 3% interest.
To extrapolate this line of calculation, let’s assume that the comfortable lifestyle is the minimum aim for you. I don’t imagine you would invest any of your time reading what I have to share with you, unless you want more from life. Let’s also assume that your first strategy to maintain your comfortable lifestyle is to take no risk with your capital and you are content with a term deposit paying you around 3% p.a.
You now need your home, plus about $2 million in cash to have an income of around $59,000.
So I guess for most people reading these thoughts, a million dollars is not close enough, not nearly enough to have a decent “living years” lifestyle.
Under these conditions, I think you will need $2.5 million – $3 million.
Unless you can be more selective and creative with your investments and earn a higher return than the bank’s 3% p.a.
What if you could earn a 10% p.a. return on your cash?
Then, you would only need cash capital outside the family home of around $700,000 to live a comfortable lifestyle.
And if you could earn 15% p.a.? About $400,000 is all you will need.
So now you have two things to think about – where can I earn 10-15% p.a. return reasonably consistently and how can I make sure I have an absolute minimum of $400-$700,000 capital outside of your family home?
And even better, how can I do this without needing to have a big income to borrow lots of money or start with a large deposit to buy assets?
The single best answer I can offer you is to take advantage of the next generation of real estate investing that is here and ready for you now. It offers you ways to get started in building a diversified real estate portfolio from as little as $5,000. If you started with just $10,000, and invested at a consistent 15% return, (ignoring taxes) your savings would build to $500,000 over a 30 year period if you just kept re-investing your annual returns. Imagine what you could do if you invested $10,000 annually? I did the calculation – it would be $3.7 million. Your lifestyle choices would enable somewhat more than “comfortable.” A boat, business class, the south of France anyone?
You can check out this new way of investing here at Brickraise – Australia’s newest real estate crowdfunding site. To be clear, Brickraise is my company, born from my fervent desire to make it easier for anyone who chooses to do so, to be able to invest in to real estate to build wealth for a better life.
This next generation of real estate investing has taken off in the USA and the UK and has now found it’s way to Australia.
I invite you to visit the Brickraise platform and become a member – it’s quick and it’s free.
The lifestyle of your choice leading up to and during your living years will depend on the choices you make now.
Decide now what you want and then make a plan to have it.
And most importantly – action your plan, consistently.