Asset allocation to Retire 5 years from now with 2,5m

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Topic Author
Neus
Posts: 110
Joined: Fri Sep 22, 2017 2:12 am

Asset allocation to Retire 5 years from now with 2,5m

Post by Neus » Tue Mar 12, 2019 5:36 am

Hi Bogleheads

So.. I currently at mid 30s with most of my net worth currently tied to real estate

Real estate in my country is currently soft with rental around 2% but i plan to take my time and wait for a better price

Assume liquidation most of real estate at 3-5 years from now, by lowest estimate i can get at least 2,5 million usd

How much should i put in stock and bond if i want to be able to spend Present Value of 100.000 usd/year without issue for another 60 years? And if possible to be extended to 100 years just in case

I live in a relatively cheap country so normal spending around 70.000 usd/year will already makes me a very happy man, the 30.000 is for travel because early retirement will be so boring and hopefully traveling will reduce boredom

Thanks before

Edit:
Just want to add, 100k would be an over the top living for me as currently spending 40k/year in Indonesia is already very comfortable as the living cost in Indonesia is a lot cheaper than in US

So:
50.000 would makes me a happy man
60.000 would makes me a happier man
and so on :)
Last edited by Neus on Wed Mar 13, 2019 10:08 pm, edited 1 time in total.

22twain
Posts: 1746
Joined: Thu May 10, 2012 5:42 pm

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by 22twain » Tue Mar 12, 2019 6:33 am

Enter "perpetual withdrawal rate" in the search box at the top right of this page. This does a Google search that is restricted to this forum. The quoted snippets seem to indicate 2% to 2.5% per year (inflation adjusted) should last "forever" (or at least until the next nuclear war or asteroid strike or whatever). So for $100,000 per year you need $4,000,000 to $5,000,000.

This is for economic conditions in the US, because this is a US-centric forum. I have no idea about your country, especially because you didn't tell us what it is. :wink: If you want advice appropriate for your country or part of the world, I suggest you post in our "Non-US Investing" forum.
My investing princiPLEs do not include absolutely preserving princiPAL.

Topic Author
Neus
Posts: 110
Joined: Fri Sep 22, 2017 2:12 am

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by Neus » Tue Mar 12, 2019 8:57 am

22twain wrote:
Tue Mar 12, 2019 6:33 am
Enter "perpetual withdrawal rate" in the search box at the top right of this page. This does a Google search that is restricted to this forum. The quoted snippets seem to indicate 2% to 2.5% per year (inflation adjusted) should last "forever" (or at least until the next nuclear war or asteroid strike or whatever). So for $100,000 per year you need $4,000,000 to $5,000,000.

This is for economic conditions in the US, because this is a US-centric forum. I have no idea about your country, especially because you didn't tell us what it is. :wink: If you want advice appropriate for your country or part of the world, I suggest you post in our "Non-US Investing" forum.
Thank you, my country is Indonesia

Checking on perpetual withdrawal

msk
Posts: 1064
Joined: Mon Aug 15, 2016 10:40 am

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by msk » Tue Mar 12, 2019 9:10 am

You believe that your RE is worth 2.5 million $ but fetches a rent of only 2%. Such low rents occur in cities like London UK for very high priced RE that is owned by nonresident foreigners. For them any rent is better than keeping the apartment unoccupied for a very long time. So, what is the cause of such low rental demand but such high RE sales pricing? Are you counting chickens that are simply not there? Are you sure that your local RE pricing is not about to collapse in the near future rather than your hoped for substantial increase over the next few years? All RE markets have a growth phase when the local population is increasing. More and more people invest in RE until the returns become mediocre. It is very important to gauge when this market saturation point is about to arrive. And get out of that RE market.

Perpetual withdrawal rates that keep up with inflation forever, 100% stocks:

Constant buying power from Day 1: something well under 3.5% (usual 4% for 30 years)

Buying power that on average keeps up with inflation forever but your spending power each year jumps up and down depending on market performance
5% of remaining portfolio per annum.

Topic Author
Neus
Posts: 110
Joined: Fri Sep 22, 2017 2:12 am

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by Neus » Wed Mar 13, 2019 5:25 am

msk wrote:
Tue Mar 12, 2019 9:10 am
You believe that your RE is worth 2.5 million $ but fetches a rent of only 2%. Such low rents occur in cities like London UK for very high priced RE that is owned by nonresident foreigners. For them any rent is better than keeping the apartment unoccupied for a very long time. So, what is the cause of such low rental demand but such high RE sales pricing? Are you counting chickens that are simply not there? Are you sure that your local RE pricing is not about to collapse in the near future rather than your hoped for substantial increase over the next few years? All RE markets have a growth phase when the local population is increasing. More and more people invest in RE until the returns become mediocre. It is very important to gauge when this market saturation point is about to arrive. And get out of that RE market.

Perpetual withdrawal rates that keep up with inflation forever, 100% stocks:

Constant buying power from Day 1: something well under 3.5% (usual 4% for 30 years)

Buying power that on average keeps up with inflation forever but your spending power each year jumps up and down depending on market performance
5% of remaining portfolio per annum.
Yes, the situation is kind of weird, i too expect the price to collapse, but it isn't

The most logical explanation is called gentrification

Before the real estate boom, we have no middle class international brand such as IKEA, H&M, Uniqlo, and such.. Apparently there's a surge on wages on recent years, so our GDP per person is increasing, therefore the real estate boom and the coming of international brand in bulk

But rent can't raise as fast as the price, and most people is now can't afford landed real estate, so currently the price per square meter is high, but alternatively people is now more accepting to consider an Apartment as a house, before apartment is considered poor man's choice

The city is expanding rapidly and soon with Light Transit System working, the price will expected to increase more

I took the most conservative valuation to get to 2.5m

Wanderingwheelz
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Joined: Mon Mar 04, 2019 9:52 am

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by Wanderingwheelz » Wed Mar 13, 2019 8:06 am

If you’re sure you’re going to be bored in retirement, why would you retire so young? To my way of thinking, I’d seek out a job that I enjoyed since you’re so young and being bored for 60 years seems like a trap best not walked into. How many places are there to travel too, anyway? $30,000/year for 60 years (present dollars) seems, to me, like a hefty price to pay to try to stay busy enough to feel fulfilled.

lakpr
Posts: 794
Joined: Fri Mar 18, 2011 9:59 am

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by lakpr » Wed Mar 13, 2019 9:53 am

With a $2.5 million nest egg, you can sustain a 4% withdrawal rate = $100k per year, for up to 30 years. If you want the “retirement” to last up to 60 years, yeah you would need up to $4 million in starting capital as mentioned by the msk and 22twain.

Topic Author
Neus
Posts: 110
Joined: Fri Sep 22, 2017 2:12 am

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by Neus » Wed Mar 13, 2019 9:55 pm

Wanderingwheelz wrote:
Wed Mar 13, 2019 8:06 am
If you’re sure you’re going to be bored in retirement, why would you retire so young? To my way of thinking, I’d seek out a job that I enjoyed since you’re so young and being bored for 60 years seems like a trap best not walked into. How many places are there to travel too, anyway? $30,000/year for 60 years (present dollars) seems, to me, like a hefty price to pay to try to stay busy enough to feel fulfilled.
Well, sometimes i want to work, but then i'm burned out and want to retire again.. Please note that knowing one can retire makes one more prone to burned out.. When things get hard i will start questioning why am i doing this, it isn't worth it, and such.

So at least knowing how much i can withdraw if i retire can be used as baseline

It seems the indefinite withdrawal at 50-50 allocation is at 3%, so i would need at least 3.3m to withdraw 100.000 which is currently lacking

I can either cut down living expense or continue working

And when target amount is achieved, it makes more sense to work in typically low paying but fulfilling activity with schedule flexibility, such as teaching part time
Last edited by Neus on Wed Mar 13, 2019 10:17 pm, edited 1 time in total.

Topic Author
Neus
Posts: 110
Joined: Fri Sep 22, 2017 2:12 am

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by Neus » Wed Mar 13, 2019 9:59 pm

msk wrote:
Tue Mar 12, 2019 9:10 am
You believe that your RE is worth 2.5 million $ but fetches a rent of only 2%. Such low rents occur in cities like London UK for very high priced RE that is owned by nonresident foreigners. For them any rent is better than keeping the apartment unoccupied for a very long time. So, what is the cause of such low rental demand but such high RE sales pricing? Are you counting chickens that are simply not there? Are you sure that your local RE pricing is not about to collapse in the near future rather than your hoped for substantial increase over the next few years? All RE markets have a growth phase when the local population is increasing. More and more people invest in RE until the returns become mediocre. It is very important to gauge when this market saturation point is about to arrive. And get out of that RE market.

Perpetual withdrawal rates that keep up with inflation forever, 100% stocks:

Constant buying power from Day 1: something well under 3.5% (usual 4% for 30 years)

Buying power that on average keeps up with inflation forever but your spending power each year jumps up and down depending on market performance
5% of remaining portfolio per annum.
I can't put 100% in stock, it just too volatile for my nerves

I thought i can do 100% stock, but the last jitters prove that i can't

So 50% equity is a maximum amount for my allocation

Browsing at other thread it seems i can safely withdraw 3% indefinitely at 50-50 allocation

ohai
Posts: 236
Joined: Wed Dec 27, 2017 2:10 pm

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by ohai » Wed Mar 13, 2019 10:15 pm

2% real estate rates (presumably after all costs) seems questionable in Indonesia, where interest rates are in the 6% range. Which foreigners are buying apartments in Jakarta when they can get higher yields in London or New York? But, I guess maybe it is just like that. I assume OP knows better than me. Maybe that is why he is asking about moving all that money to stocks and bonds.

Topic Author
Neus
Posts: 110
Joined: Fri Sep 22, 2017 2:12 am

Re: Asset allocation to Retire 5 years from now with 2,5m

Post by Neus » Wed Mar 13, 2019 10:27 pm

ohai wrote:
Wed Mar 13, 2019 10:15 pm
2% real estate rates (presumably after all costs) seems questionable in Indonesia, where interest rates are in the 6% range. Which foreigners are buying apartments in Jakarta when they can get higher yields in London or New York? But, I guess maybe it is just like that. I assume OP knows better than me. Maybe that is why he is asking about moving all that money to stocks and bonds.
Foreigner can't buy properties in Indonesia, i think an exception is recently made but still limited to high end apartments and it's only 75 years ownership

In Indonesia apartments yield higher, but that's to compensate faster building depreciation, lack of capital appreciation, and high risk of bad management deteriorate the entire apartment

Regarding appreciation, if the same square meters divided by 20 floor, means you own 5% of the land compared to 100% ownership at landed houses

So when the land appreciates by 100%, the landed house owner get 100% gain, while the apartment owner only get 5% gain (building value didn't appreciate)

While 2% seems low the appreciation on land should at least follow inflation

The reason Land in Jakarta will always appreciate is because not only Jakarta is the largest city in Indonesia but it's also center of commerce and government (Unlike US where there's a lot of city to choose for), it's a huge magnet with almost no alternative city so demand for land in Jakarta will constantly high.

My point is 2% yield can be reasonable because there's gain on the land

But other explanations might apply because i myself didn't fully understand the cause, no one seems to know either, as i mention earlier, one of the short explanation on this particular phenomena is Gentrification.

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