How many 'go-go' years will you have in retirement?

One of the factors to be considered when planning for how long your retirement savings might need to last, is to consider both life expectancy and healthy life expectancy. The World Health organisation has published some data on Life expectancy and Healthy life expectancy by country. For retirement planning purposes it is also important to look at these figures at age 60, not 'at birth'. The relevant figures for males in various developed countries are listed below:

Male Healthy Life Expectancy at age 60: (2019 data)
        yrs => age:
Australia         18.2 78.2
New Zealand 17.9 77.9
Japan 18.8 78.8
UK         17.6 77.6
Germany      17.0 77.0
France         18.5 78.5
USA         15.6 75.6
Canada 18.2 78.2

Male Life Expectancy at age 60: (2019 data)
    yrs => age:
Australia      24.4 84.4
New Zealand 23.8 83.8
Japan 23.9 83.9
UK         23.0 83.0
Germany 21.9 81.9
France 23.3 83.3
USA         21.8 81.8
Canada 23.8 83.8

So for the average Australian male aged 60 who intends to retire at 65, it would be reasonable to expect (on average) to have 13.2 years (to age 78.2) of healthy, or 'go-go' years where spending needs might be somewhat higher to fund travel, hobbies etc. Then a slightly lower spending rate during to slow-go and no-go years to age 84.4 (ie. another 6.2 years).

Of course past lifestyle, genetics, and behaviour during retirement and luck (eg. terminal illness) could make actual healthy and total lifespan vary considerably from 'the average'. So it is really just a reasonable 'guestimate'. I find it quite amusing that financial planners often plug in national life expectancy (sometimes with an extra 5 years added on 'just in case') when doing Monte Carlo simulations to provide a 'probability of success' figure for a specific retirement starting balance, asset allocation, and estimated average return and std dev. The 'simulation' of 1,000 'runs' will then spit out a figure like '96%' probability of success, meaning that in 4% of the simulations the retirement funds would be exhausted before the 'end date'. But if one also takes into account the uncertainty in the 'end date' (ie longevity risk) such probability figures are really have massive 'error bars'. The plots of the simulations often show the average final balance and the range (and perhaps top and bottom quartiles), but generally do not show the impact the variability in life expectancy will have on the range of 'projected' outcomes.

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Net Worth - NOV 2024

Chart updated to end of NOV in sidebar.

Stocks/cash increased $7,373 (+2.44%) to $308,938 due to a strong equities market during the past month.

Retirement savings (SMSF etc) increased by $74,920 (3.97%) to $1,963,144.

Est. valuation of our home (my half) decreased slightly by -$1,296 (-0.11%) to $1,193,207. However he 'Other real estate' (my 'lake house' and the investment apartment) increased by $35,067 (+1.62%) to $2,195,470.

Other assets (my online depository bullion account at Perth Mint, and the bullion value of my gold and silver proof coin collection) decreased by -$1,616 (-3.14%) to $49,803 due to a reversal in the  gold and silver upwards trend during November..

Overall, NW increased strongly by +$114,448 (+2.49%) to $4,718,571 during November, to hit a new personal record high. Since 1 Jan my NW has risen $555K, which seems rather unbelievable.

I added  a new widget to the top of the blog template - the 'Buffet Indicator' for the Australian Stock Market Total Capitalization divided by the Australian GDP.  The US version suggests that the US stock market might be overpriced (so there is increased probability of a correctio or extended period of low price growth) in coming years. The Australian market in comparison seems more reasonably priced (unlike the situation in 2007), but often drops in 'sympathy' with any large fall in the US market regardless.

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Net Worth - OCT 2024

Chart updated to end of OCT in sidebar.

Stocks/cash increased $8,402 (+2.87%) to $301,565 (mostly due to cash savings as the market was fairly flat over the full month). This was partly due to my tenants paying two month's of rent during October. I had requested a modest annual rent increase (from $850/wk to $888/wk, or 4.47%, which was quite conservative as the rent had not been increased last year, and inflation during the past 2 years was around 10%. However, the tenants gave notice that they would be leaving in late November (as they couldn't afford a rent increase). I decided to offer keeping the current rent for another year if they signed a new 12-month lease. We'll see what they decide. If they move out the unit might be vacant for serveral weeks, and the managing agent also charges a week's rent to arrange a new tenant. So forgoing a rent rise for 12 months might be a better option than finding new tenants. I'm a bit loath to skip a rent increase for 2 years in a row, however, as if the current tenants then remain for several years it is difficult to ever 'catch up' the rent increase. Usually you can only revert to 'market rates' when a new tenant moves in.

Retirement savings (SMSF etc) decreased by -$1,195 (-0.06%) to $1,888,224.

Est. valuation of our home (my half) decreased by -$16,842 (-1.39%) to $1,194,503. The 'Other real estate' (my 'lake house' and the investment apartment) also decreased by -$1,248 (-0.06%) to $2,160,403. The estimated value of my investment apartment dropped again, more than the slight increase in the estimated valuation for my 'lake house'.

Other assets (my online depository bullion account at Perth Mint, and the bullion value of my gold and silver proof coin collection) increased by $4,554 (+9.72%) to $51,419 due to continuing rise in gold and silver prices..

Overall, NW decreased slightly by -$6,329 (-0.14%) to $4,604,123 during October.

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Overall LVR since buying my 'off-the-plan' $1MM apartment five years ago

Looking at the breakdown of my overall NW chart in networthshare, the amount of debt ($1MM) I took on relative to my NW ($2.35MM) at the time was quite adventurous. The LVR was 42.5%, which was quite high (similar to the gearing levels I had used for my margin loan share portfolio prior to the GFC). But fortunately you can't get a 'margin call' on a property mortgage (as long as you keep making the required monthly payments). In the five years since making that purchase decision the unit construction was completed, the loan settled (so the loan was established and repayments commenced), and mortgage interest rates have climbed considerably. But at least the apartment valuation is more than I initially paid, and while I get a hefty tax deduction via negative gearing (mostly due to the depreciation schedule) the actual cashflow cost 'out-of-pocket' is relatively modest (at least for another couple of years while the loan remains in 'interest only' mode).

The unit was initially rented out for $850/wk (about $50/wk more than similar units due to my allowing the tenants to have a pet dog), and the rent wasn't increased last year when the first tenants moved out and I decided to not increase the rent in order to get new tenants as quickly as possible (they actually moved in a couple of days after the previous tenants vacated). The managing agent did the annual rent review last month, and had initially suggested that I only increase the rent by $20/wk. I pointed out that the comparison rents they had based this on were for apartments on the lower levels (with no city or harbour views), and those units probably didn't allow pets. So I requested the rent be increased by $38/wk (to a nice 'auspicious' rate of $888/wk - which was slightly ruined by the agent only citing the equivalent monthly figure on the rent notice given to the tenants). This was still a rather modest overall increase of only 4.5% over two years considering that Sydney rents have generally risen by over 6% in just the past 12 months.

Due to the outstanding loan balance saying at roughly $1MM during the past five years, while my NW has increased to $4.6MM over that period, the overall LVR for my entire 'portfolio' has now decreased to a much more conservative 21.7%.

Next year I might use some of the cash sitting in my my mortgage offset account to have a self-contained 'granny flat' extension added to my 'lake house'. Initially we would be able to use the extra space when we visit during the holidays, as my parents are planning to move into the lake house next year (so it will be quite crowded if we all visit at the same time). Eventually we could continue to use the 'granny flat' extension for weekend visits if I decide to rent out the main house when my parents eventually move to Sydney to be closer to health services. Someone with a horse was interested in renting the property last year, and it could probably rent for around $600/wk - which would cover the property expenses (rates, insurance, maintenance etc.). and would repay the cost of the granny flat extension in only a few years. I could then continue to use the rental income as another retirement income stream if we end up only visiting the lake house (granny flat) occasionally after I retire.

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