** On what grounds do you reject the concept?
Do you know where the 4% idea came from? **
i have limited savings , probably not enough if inflation kicks in , or i need major medical care ( and linger on for years afterwards ) ,so a drawdown ( of any size ) except in emergencies is probably not a safe choice , for me
the second reason is one can rarely guess future inflation it could easily be over 10% is say 10 years time , all you need is a credit crunch and nervous lenders
OK, it sounds like you are retired, but your net worth does not return enough income to support your expenses. Fair enough, you're certainly not in the minority. In your case the 4% guide line, just means, if you want that money pool to last 30 years, only spend 4% each year.
If inflation gets crazy, most assets also increase. I remember 10% 1 year CDs at my local bank in the 80s, now they are just above 2%.
4% seems to be the figure the fund managers selling annuities came up with to allow most retirees to have on income in their later years ( but what if you live beyond 100 , that income might look pretty slim then)
Actually the 4% guide line was from "William Bengen (a financial planner from El Cajon, California) in a 1994 series of papers, published in the Journal of Financial Planning", it was then backed up by the Trinity study.
The 4% Guideline simply stated says, you can invest you nest egg (mostly in the stock market) and withdraw 4% of it each year and have a good chance that you will still have money after 30 years. The success rate is well above 90% and I think closer to 96%. The 4% from the first year is indexed to inflation, so you are allowed to withdraw 4% plus an inflation adjustment each year.
*** Could you rewrite the above, I don't understand what you said. If I do, I may disagree. ***
consider your asset base as the $$$ value of your stocks , bonds and cash deposts at the end of the 12 months ( calendar year , of financial year , whichever works for you ) any dividends and interest that hasn't been spent in the last 12 months should have been reivested or sitting in a cash deposit account so would get counted in the $$ value of the portfolio )
All that to say- Networth
those with property assets MIGHT keep profits from them in a seperate fund for ( property related ) emergency expenses ( burst pipes , fires , storm damage etc ) ( and if that fund is overflowing maybe even buy some more investment property )
I think those are still part of your networth. But we all should have an easily accessible 6 month emergency fund.
now others might disagree that i treat property assets seperately but i consider them illiquid assets ( it might take 12 months or more to sell them at 'a fair price ' when YOU really need that cash .. say in the middle of a credit crunch or property downturn )
( and disagreeing is fine by me this a forum where we can swap views and opinions )
cheers
Ya, if you are highly leveraged*, you might need to have a larger emergency fund. But if you are living on 4%, a lot would need to go wrong to force a sale. After all, the properties are supposed to be income producing, so do they all stop producing at the same time to force a sale.
The 4% is supposed to work through stock market drops of 30%, just hang on with your 4% Withdrawal Rate, until things turn around.
*if the properties are highly leveraged then your net worth is somewhere else, not in the property, so you should have that money somewhere.
Point is a highly leveraged property doesn't add much to your net worth.
Thanks for the discussion
