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General Category => Shares => Topic started by: Patrick on May 13, 2014, 02:20:02 pm

Title: Early retirement
Post by: Patrick on May 13, 2014, 02:20:02 pm
I know all about the 4% rule, as a reminder, if you have 25 x your annual expenses invested, you should never need to work again. But when would you think about hanging up the suit and tie?

I'm asking because although I love my job, a lot, changes on the way would mean I may need to spend a few years in a difficult place, far from the people I love... Money can buy you a lot, but it can't buy you years in your child's life. In theory I have enough, just, thank goodness for living well below my means... I could also consider a sabbatical from normal work now, and pick up a more permanent post again when he's older. Or I could find something I truely would love to do now... All sorts of questions...
Title: Re: When do you have enough?
Post by: Nios on May 14, 2014, 10:28:32 pm
If I were you and I had 25 x my annual expenses now with my young child I would probably hang it up now.

 If you love your job then as they say, you never actually work a day in your life if you love what you do, different story altogether. Unless you have other stuff to occupy your time with and it enables you to have a sense of social responsibility then great. But you may end up bored eventually. I think as humans we need to constantly be striving for achievement in what ever aspect of our lives in order to feel fulfilled.

Why not take your family with you and add to yours and their life experiences bucket together and build that stash even more if its an option so you're always close by to your son.
Title: Re: When do you have enough?
Post by: gcr on May 14, 2014, 11:48:16 pm
The question as to what is enough is really what your needs and wants are, and the lifestyle you want to maintain.
 Let me relate 2 stories:- My father served in the war, had a regular job and worked until age 60 and retired 33 years ago. He always owned his own house and 8 years ago sold his house and moved to a retirement village in Somerset West. His pension of R 13,000 (rental R 8,700) on the face of it plus income from R 1.4 mill met their limited needs of shelter, and sustenance. However age caught up with them and 2 years ago their entire financial needs changed:- I had to employ care givers to look after them (R 10,000 per month) rent and food and utilities remained the same, pharmacy accounts ranged between R 500 and R 1,000 per month and medical costs over and above medical aid settlements another R 300 per month. Family made a decision to relocate parents to a frail care facility at an all inclusive cost of R 22,000 per month for both parents - medical and pharmacy costs didn't change nor did income from pension or investment returns.
Was/is my parent finances adequate - I don't really know, my father passed away last month and my Mom will now experience a 50% payout on my Dad's pension but her rental is 2.2 times this income, will she survive on her and my Dad's investments - yes I believe she will for the next 4 years.
Moving to the next scenario:-
My pension is more than R500,000 per annum and I have investments of + R 3.0 million, a living annuity that I drawn down the minimum 2.5 % p.a., a house fully paid for and 2 cars (paid off). do I think this is enough - absolutely not - I have absolutely no idea what medical costs will be when I am in my 80/90's (my family has a history of long levity), what major operations I might be subjected to (bypass surgery today is astronomical) and what care I may require in the future. It is senseless considering your house as an asset, it is merely a bargaining chip for where you ultimately decide to rest your bones. So my sense is that I probably need to double or even triple my investments by the time I reach 80 which is in 13 years time.
So wealth is directly related to the lifestyle you want to live versus your needs and medical costs, and the type of medical/health care that you may require in the future - which is unpredictable. A simple experience like a stroke can change your life and circumstance dramatically.
So sit in a chair in a quiet corner of your lounge and ponder all the medical option that can befall you and then decide what is enough to sustain you
A reality check is always refreshing
             
Title: Re: When do you have enough?
Post by: Patrick on May 15, 2014, 11:14:02 am
Why not take your family with you and add to yours and their life experiences bucket together and build that stash even more if its an option so you're always close by to your son.
I'd love to, but the posting is looking like it could be South Sudan/Kenya/Senegal or similar places. Out of the three Senegal is the only one I'd consider a good location for raising a family. South Sudan is a non-family post, and Nairobi is too high risk in terms of crime/terrorism for me to want to raise my child there...

The question as to what is enough is really what your needs and wants are, and the lifestyle you want to maintain.
 Let me relate 2 stories:- My father served in the war, had a regular job and worked until age 60 and retired 33 years ago. He always owned his own house and 8 years ago sold his house and moved to a retirement village in Somerset West. His pension of R 13,000 (rental R 8,700) on the face of it plus income from R 1.4 mill met their limited needs of shelter, and sustenance. However age caught up with them and 2 years ago their entire financial needs changed:- I had to employ care givers to look after them (R 10,000 per month) rent and food and utilities remained the same, pharmacy accounts ranged between R 500 and R 1,000 per month and medical costs over and above medical aid settlements another R 300 per month. Family made a decision to relocate parents to a frail care facility at an all inclusive cost of R 22,000 per month for both parents - medical and pharmacy costs didn't change nor did income from pension or investment returns.
Was/is my parent finances adequate - I don't really know, my father passed away last month and my Mom will now experience a 50% payout on my Dad's pension but her rental is 2.2 times this income, will she survive on her and my Dad's investments - yes I believe she will for the next 4 years.
Moving to the next scenario:-
My pension is more than R500,000 per annum and I have investments of + R 3.0 million, a living annuity that I drawn down the minimum 2.5 % p.a., a house fully paid for and 2 cars (paid off). do I think this is enough - absolutely not - I have absolutely no idea what medical costs will be when I am in my 80/90's (my family has a history of long levity), what major operations I might be subjected to (bypass surgery today is astronomical) and what care I may require in the future. It is senseless considering your house as an asset, it is merely a bargaining chip for where you ultimately decide to rest your bones. So my sense is that I probably need to double or even triple my investments by the time I reach 80 which is in 13 years time.
So wealth is directly related to the lifestyle you want to live versus your needs and medical costs, and the type of medical/health care that you may require in the future - which is unpredictable. A simple experience like a stroke can change your life and circumstance dramatically.
So sit in a chair in a quiet corner of your lounge and ponder all the medical option that can befall you and then decide what is enough to sustain you
A reality check is always refreshing
Always appreciate your views gcr. Sorry to hear about the loss of your father.

Old age medical is a complete unknown. Most likely if I took the time off now I'd consider keeping myself employed in some way or another. I like feeling productive, and would always rather live on income than assets. Most likely in a fixed and retirement fund contributing capacity at some point in the future. I must say though, if I had your financial situation it would be a no brainer for me, but we are all different!

Just FYI, there is still a chance I get to stay in SA, but to quote the boss, I need to "sing for my supper"! It's really an odd situation, I've had one of my most impressive years. Travelled to 7 countries and impressed the hell out of everyone. All sorts of offers have come my way for the other countries, but my post in SA is likely to be taken by an outsider. Strange office rules means that foreigners outrank locals, and can displace them if the need arises.
Title: Re: When do you have enough?
Post by: yozzi on July 17, 2014, 10:04:35 am
The question as to what is enough is really what your needs and wants are, and the lifestyle you want to maintain.
 Let me relate 2 stories:- My father served in the war, had a regular job and worked until age 60 and retired 33 years ago. He always owned his own house and 8 years ago sold his house and moved to a retirement village in Somerset West. His pension of R 13,000 (rental R 8,700) on the face of it plus income from R 1.4 mill met their limited needs of shelter, and sustenance. However age caught up with them and 2 years ago their entire financial needs changed:- I had to employ care givers to look after them (R 10,000 per month) rent and food and utilities remained the same, pharmacy accounts ranged between R 500 and R 1,000 per month and medical costs over and above medical aid settlements another R 300 per month. Family made a decision to relocate parents to a frail care facility at an all inclusive cost of R 22,000 per month for both parents - medical and pharmacy costs didn't change nor did income from pension or investment returns.
Was/is my parent finances adequate - I don't really know, my father passed away last month and my Mom will now experience a 50% payout on my Dad's pension but her rental is 2.2 times this income, will she survive on her and my Dad's investments - yes I believe she will for the next 4 years.
Moving to the next scenario:-
My pension is more than R500,000 per annum and I have investments of + R 3.0 million, a living annuity that I drawn down the minimum 2.5 % p.a., a house fully paid for and 2 cars (paid off). do I think this is enough - absolutely not - I have absolutely no idea what medical costs will be when I am in my 80/90's (my family has a history of long levity), what major operations I might be subjected to (bypass surgery today is astronomical) and what care I may require in the future. It is senseless considering your house as an asset, it is merely a bargaining chip for where you ultimately decide to rest your bones. So my sense is that I probably need to double or even triple my investments by the time I reach 80 which is in 13 years time.
So wealth is directly related to the lifestyle you want to live versus your needs and medical costs, and the type of medical/health care that you may require in the future - which is unpredictable. A simple experience like a stroke can change your life and circumstance dramatically.
So sit in a chair in a quiet corner of your lounge and ponder all the medical option that can befall you and then decide what is enough to sustain you
A reality check is always refreshing
           

Gcr, would I be correct in saying that if you have R3m invested (same as myself) you should be expecting around 25-30% return per annum which is somewhere in the region of R1m and added to your R500k pension is a fairly decent income going forward?
Title: Re: When do you have enough?
Post by: gcr on July 17, 2014, 11:41:38 am
Yozzi - With present investments and pension my income is sufficient to meet all my needs. However I don't take funds out of my trading account (which is 75% of my investments) so these funds are not used to support my lifestyle - all dividends are used to purchase shares and when I can afford it I put more funds into my trading account by juggling my current account, card accounts, and bond account. My dividends run about at about R35,000 p.m. thanks to the government now taking 15% divi tax. So in essence my share portfolio grows annually based on how well my portfolio performs - however that is wealth based on a paper value as I am still holding the shares in the portfolio. What I am alluding to is at present day value I can afford most of my wants, but extend my longevity to age 80 and I don't know whether I will be in the same position I am now, somehow I don't think so, I could for example get below CPI increases on my pension and that shortfall would need to be made up somehow, so I am happy to take 18% increase in portfolio value, but aim for + 20% so that CGT and other taxes don't take too much of my available funds and don't force me into selling off capital to survive
Hope this explains my views on how much is enough 
Title: Re: When do you have enough?
Post by: Patrick on July 17, 2014, 03:06:34 pm
Yozzi - With present investments and pension my income is sufficient to meet all my needs. However I don't take funds out of my trading account (which is 75% of my investments) so these funds are not used to support my lifestyle - all dividends are used to purchase shares and when I can afford it I put more funds into my trading account by juggling my current account, card accounts, and bond account. My dividends run about at about R35,000 p.m. thanks to the government now taking 15% divi tax. So in essence my share portfolio grows annually based on how well my portfolio performs - however that is wealth based on a paper value as I am still holding the shares in the portfolio. What I am alluding to is at present day value I can afford most of my wants, but extend my longevity to age 80 and I don't know whether I will be in the same position I am now, somehow I don't think so, I could for example get below CPI increases on my pension and that shortfall would need to be made up somehow, so I am happy to take 18% increase in portfolio value, but aim for + 20% so that CGT and other taxes don't take too much of my available funds and don't force me into selling off capital to survive
Hope this explains my views on how much is enough

Is the R35k p.m. a type perhaps? On a R3mil portfolio that would be a return of 14%. Is it not perhaps R35k per year? Congrats on getting yourself into such a solid position though. Mind if I ask what your day job used to be?
Title: Re: When do you have enough?
Post by: gcr on July 17, 2014, 03:39:37 pm
Yup should be R 35k p.a. :D
Securing space, approving layouts, authorising capex expenditure, managing project managers and contractors to build branches for one of the 4 major banks
Title: Early retirement
Post by: Mr_Dividend on April 20, 2015, 07:49:57 am
As a couple of guys asked what was my story I thought I would tack it on to this thread as it seemed appropriate.

I am 41, married no kids (but two lovely dogs), house paid and retired. As I have never been paid much - quite a bit of luck has got me to this point, but also a healthy dose of financial planning/ or at least frugality. Firstly I have always been a good saver and at an early age could not see the point of only saving 10% - at that rate it would take forever to save for anything meaningful. I have always worked and made my pocket money - started pushing trolleys at the local OK at around 12 on holidays - eventually graduating to my paper route (business day and ST - BD is still my favourite newspaper, ST is now a tabloid IMO). Anyway, always had jobs often two, and with it saved and bought all that I needed - unfortunately a lesson that I did not learn - saving IS NOT investing. Personally there should be a clear distinction between the two, as they have two very different uses. As said, I have always been a good saver, had I been a good investor - well, I would be sitting pretty pretty.

Let's fast forward here otherwise this could take forever! About 13 years ago got married in the UK to a Cape Town lass and we started saving together for a house/ shack in Spain/France - deciding that country living would be great having watched a few TV series and read a few books. Took around 2 years of long hours, often weekends and we had around 20,000 pounds - by that time we had seen that we could buy a better condition house in a rural setting in the Western Cape. So we took a holiday, rented a car and visited a few places we had seen on the internet. We settled on one in a tiny village about a hour and a bit outside CT - cost us R280,000. For that we got a huge house that had been used as a B&B and large 6000m2 plot. But wiped us out financially and we had to go back to work for a year to get the cash for car, fridge and the bit's need to make it into a B&B. Unfortunately it never really worked and although we had a happy couple of years, we were broke at the end, but the property price had shot up and I sold it privately (for cash in a week) for 1.6mill - this was my first bit of luck.

We used half for our new house (sold house on Sunday/bought new house on Monday/ cash was in my account on Wednesday/ house was transferred in one month - all in all a very quick sale) BTW we received 1.2mil straight away, the rest came later as had divided the property and that took ages and some engineering works - after that and various fees I guess we came out with 1.5mil. Anyway, new house was 800k pretty much spit the R400k, wife made a studio( she works from home), bought a car, chewed through a bit of money before buying some shares after a year of pestering her (she would have got Capitec at under R100, instead of the R140 she paid) and I used my half to open a shop - something I always wanted. I have, unfortunately, always been in retail - after the food industry, I think the kakkiest sector to be in - long hours/low wages - yippee.

Part two later - I type with two fingers - so this is taking a while.
Title: Early retirement
Post by: jaDEB on April 20, 2015, 09:49:07 am
I will start : -

Mine is not so much Early retirement, but rather getting cash ready for Emergency, but the idea of Early retirement is there.

I have a pension, current company, not touched. But had a Preservation fund from previous company, 15 Years ago. Cashed it up in February 2015 and added the monies to my Portfolio. Thus my portfolio is much higher than in past.

Title: Re: Early retirement
Post by: jaDEB on April 20, 2015, 11:36:05 am
How do you draw a income, i.e. tax etc ?
Title: Re: Early retirement
Post by: Orca on April 20, 2015, 12:22:12 pm
Debt is the biggest stumbling block with retirement and can prevent you from ever retiring. My wife and I were very fortunate to have our business collapse and our belongings attached by the Sheriff and sold. Plus we had to hand in our very handy credit cards and my wife's precious Edgars card was cancelled. That was 19 years ago.
At the time, it felt like our world had collapsed around us but looking back now, it was a blessing in disguise.

After we clawed back up over the years, the fear of having credit has never left us. My family did not lack for anything as we had more cash available and no credit at all to pay every month.
I now do have a credit card but use it as a debit card. (you cannot book international flights without a credit card).

As I said, the snowball effect of credit can prevent you from ever retiring.
Title: Re: Early retirement
Post by: Patrick on April 20, 2015, 12:53:28 pm
Ok did a little merging of the two topics that were all related...
Title: Re: Early retirement
Post by: Mr_Dividend on April 20, 2015, 02:18:36 pm
Part two.

So started a very small shop about 8 years ago - and, through a bit of trail and error learn't a few important things. The owner is the last person to be paid - and I mean, the VERY last. In fact, if you do not make the effort, you might not get paid at all! Although I did reinvest all profits back into the business, which is good to a point, at some time you do need to start taking some out and setting it aside - I did not.

I also found out I was a better manager than owner when staff where concerned - bit soft really. I am also fairly lazy so some checks and balances where throw out the window. I am a good buyer though and have an ok "small business brain" - so did grow my one shop into three and into better locations. And then closed them all - in the reverse of how I opened them. No 3 was closed purely because of staff, 2 was the gold mine but closed when two large chain stores moved in. So I was left with shop one, the first one and a hell of a lot of stock (1mill plus)that came from the other two and still had a year and a half to go on the lease and carrying around R300K worth of stock debt.

Now around this time I found out that my farther was going to make my sister and I beneficiaries in a smallish trust my grandfather had set up - rather nice of him. Paid out 30K in 2013, 40k in 2014 and 2015. It looks like this is set to continue for a while, but my farther has first dibs if he needs it - so not guaranteed, but a handy about of cash.

So I started doing calculations to see if i could survive not working - and how much I would need to invest and what return I could expect. But more importantly, finding out how much I need to live - as luck would have it, not much. I have never had a store card in my life and the only debt have ever had has been linked to my shop. With a bit of trial and error I have found R5500 p/m does the trick nicely. I do though have medical aid - which would probably be good, but the local hospital is fine for most things and have a private clinic that charge R350 per visit including medication - think I've been twice in 8 years or so.

That R5500 includes a bike ride to a spur for sunday breakfast every week and we normally can squeeze in one comedy/ classical or Jazz night in CT. Basically gets divided into R600 p/w (food/spur/petrol) R1200 p/m (insurance/rates/elect/dstv/internet) - gives around R1700 for that big OTHER category (gifts/DIY/monthly outing).

But as said, no holiday cash or medical aid. And please note, my wife still works from home and has no intention of retiring, nor would she have anything to do if she did - and all bills are split, so we are actually spending double on the figures quoted above.

Now I give my wife 10% of what I get from the trust and I need R5500 per month so R5500 x 12 = R66 000 per year -  R36K (R40K - 10%) - I need to generate R30K per year out of what I could salvage out of the last shop. I figured with a bit of luck I could squeeze R500K out of it (after paying expenses and stock debt and car debt) I with a bit of luck get 5% of dividends using a mix of REITs ( at around 6 - 8%) and decent dividend paying shares ( at 3 - 5%) and this would give me 5%.

I am not sure why I decided the dividend approach "clicked" with me - I know it doesn't really matter, but the fact I am not selling the capital really makes sense and just sit's well with me. Also I think I worked it off R5K per month - so it did work on paper. i have only recently found the extra R500 p/m makes it all work well - funny how a relatively small amount makes quite a difference

Anyway - after making a spreadsheet with my new financial goals, set about putting it into action - and I am happy to say it all worked quite well. Ended up putting in R650K into my main account (did include around R60k from the trust) so an ok but not great return from my original investment - I did spend a bit on the house adding pool and walls and lot's of other bits/ and very full wood workshop - I am not a minimalist at all. Plus got an old motor bike and a new bakkie that should last me 20 or so years.

Have been retired just over 6 months - the R650K has grow to R900K (but was invest monthly from 2 years ago, so very hard to work out a yearly return - plus way more came at the end as debt was paid). So far this year it is on 12% - I do not expect or need it to shoot the lights out, but 15% per year on the capital would be great. I am more interested in the dividend obviously - and that is what I look for in SENS. I hope that dividends out strip inflation and essentially I get richer as I get older -  ;D I work on 6 months/ 6 months - 1 being the trust and 2 being all the dividends for a year.

Now I need to go my a thermostat for my oven - cannot handle burn't muffins anymore, part three later.
Title: Re: Early retirement
Post by: jaDEB on April 20, 2015, 03:12:28 pm
Good read, please keep it coming. PS. my daughter turned 21, so I had to put her on medical aid, if you want to, have a look at Discovery Key care. Not too expensive and it has a hospital plan.
Title: Re: Early retirement
Post by: Mr_Dividend on April 20, 2015, 04:58:56 pm
The joys of DIY - replaced thermostat with a bit of trial and error and R300 - ouch. Seems to work, but lately I have found stoves are one of the few electrical items that can sort of work, anywhere between 40 - 70% . Whereas other things ether work, or they don't. Oh well, will find something to chuck in the oven in the next few days.

But it did make me think. One of the many great things about retiring early are the little achievements(read jobs) you have time to do -small, not very important maybe, but after doing them you can give yourself a mental high five and have a slight grin on your face when going to bed.
Title: Re: Early retirement
Post by: Mr_Dividend on April 20, 2015, 07:55:39 pm
Ok this is the last little bit - more on the life I was picturing for myself a couple of years back. But back to money (or lack of it!) - I do realise that things happen and things break and occasionally I would require more than my monthly "allowance". This is taken care of by another, separate stock account that is not geared for dividends and have no problem selling and trading them - this is sitting at just over R60K and has come from stock I did not get to sell when closing the shop and have sold online - still quite a bit to go and will easily have R100K by the time I'm done - so do have a bit of a cushion in case something fairly large happens.

Again, it's a bit of a vasbyt situation - the longer I get into to it the better.

Then, the idea is not to give up work altogether, but eventually find a hobby that I can make a bit of holiday cash off - I have a decent size workshop filled with some decent second hand woodworking/ woodturning equipment. Plus want to build a forge and play with metal sculpture as well as paint. I figure it should not be too hard to make 2 - 3k a month selling items that I have created/ reclaimed at arts and crafts fairs, hopefully just 1 to 2 a month and maybe a few more over Christmas. But am not in any rush to get that going, have taken quite a while sorting out my garage (insulating and french cleating it) - It's a nice size ( 4 car) so have space to play!

Also, of course, saving money is sometimes better than earning money - and I quite enjoy vegetable gardening and I see a couple of micro businesses in there - I certainly wouldn't want any to become a "job" - just selling a bit here and there.

It's certainly not a life for everyone, and I am sure many will scoff at the budget - there are obviously no new BM's or holiday homes on the horizon, and I think the fact I am not aiming for one sometimes throws people off. But , luckily for me, I seem to get pleasure out of more mundane things - making a bowl on the lathe, jumping on the bike for our Sunday ride to some Western Cape dorpie or making a batch of pear fruit leather. Don't get me wrong, if I had more money I would happily spend it and I fully realise that if I did not have any spare money I would also not be happy. But for me, working my butt of for certain things is just not worth it - I would rather have the free time. Even if last week I spent hours watching tennis on the couch with my dogs and the business day for company, loved it. Bring on the French Open.
Title: Re: Early retirement
Post by: Orca on April 20, 2015, 09:11:26 pm
I wish you all the best MrDivie. And me of course. I don't totally agree on that 4% rule as it is in a low return investment with a portion in cash and bonds. I don't need cash and bonds to reign in my portfolio performance.

Historically, equities in the form of ETF's outperform all pension funds and the like by a large margin. The FSB has realised this and has increased the percentage of equities allowed in retirement funds.

This brings me to the point of saying that this 4% thingy is not applicable to all investors and only applies to managed retirement funds.

If you had invested in the INDI ETF your 4% would increase to 8% at least. Now you might say "what if the INDI crashes". When has it ever crashed outside of a normal market crash? Never.
Now you might also say "cash and bonds don't crash". Not correct. A 5 year low return is a protracted crash in my view.





Title: Re: Early retirement
Post by: Mr_Dividend on April 21, 2015, 06:46:11 am
Cheers Orca - that INDI looks very good. Have actually sold 30K from my main account and am transferring it over to invest mainly in the INDI. I would not be able to only invest in it as it's divi is too low initially. As to the 4% rule, I agree - might be more appropriate to the States and Europe, slower more established economies. And, as you say, guys with cash and bonds - personally I do not see the point. I do have around 30% in listed property though - might actually up this in the future as it's earnings are tax free - for me anyway (23k interest cap as well as your first R72K)

But to save me all the maths the dividend approach works for me - impossible for me to ever run out as I am not using the capital, very rare that a company stops paying a dividend and for most, even in a market pull back, the dividend usually increases. BUT just in case, my portfolio is pretty diverse across sectors and companies to try alleviate any single company having a bad year. I can be a bit of a worrier - but this way I have not had one iota of doubt. Working 1 year in arrears also helps - would be really tough to do month to month. For instance, all the dividends from 1 Sep 2014 to the end of August 2015 are used for the 6 months starting Sep 2015 - sitting at around R25k at the moment, so at the least have R4K a month so far.

Orca, in one post you mentioned you might buy a flat? Thought this would be an odd move, as it would make a fair dent in your capital as well as tie you down a bit. Are you still looking? Personally I would move around a bit, see Europe for a few years before picking a place to settle for a bit - find a good fishing spot! I would be tempted to use a camper van.
Title: Re: Early retirement
Post by: Orca on April 21, 2015, 10:23:33 am
I unfortunately cannot live on divies and need capital growth. At this stage, I get about R80k divies pa and I need R140k to live pa.

As to property, here is an example of an apartment here in Viana.  http://www.custojusto.pt/viana-do-castelo/apartamentos/apartamento-t2-11702632

€35k is rather cheap plus it has all the main appliances and furnishings. I pay €375.00 pm rent but have no garden to keep myself busy.
Title: Re: Early retirement
Post by: Moneypenny on April 21, 2015, 10:53:08 am
I guess it all comes down to what retirement means to you.  Some find their bliss in being free, creative, self-sustaining or whatever floats their boat and that’s how it should be. 

Personally, retirement for me would mean travelling the world and funding & getting involved in worthwhile expeditions.  I’ll start at Alaska and work my way through, obviously making stops in Monaco and Aspen just to balance my Zen-side with my material needs.  I can literally hear Patrick rolling his eyes. ::)

Good luck MrD, you seem content and happy and I'm sure many on this forum envy you and will follow your lead.
Title: Re: Early retirement
Post by: Mr_Dividend on April 21, 2015, 11:36:19 am
Quote
I unfortunately cannot live on divies and need capital growth. At this stage, I get about R80k divies pa and I need R140k to live pa.

As to property, here is an example of an apartment here in Viana.  http://www.custojusto.pt/viana-do-castelo/apartamentos/apartamento-t2-11702632

€35k is rather cheap plus it has all the main appliances and furnishings. I pay €375.00 pm rent but have no garden to keep myself busy.

Ok, so draw down in capital is not too large - pretty manageable. Flat wise looks quite similar to what you get for similar money in the Cape hey? Although you normally get around 80m2 for a two bed. Is buying still part of the picture? Did you learn Portuguese before going/ or having lesson now? Personally, I find new languages extremely hard to learn. After umpteen years learning Afrikaans at school, Afrikaans father and now living in an Afrikaans dorpie - I can barely string two words together.
Title: Re: Early retirement
Post by: Mr_Dividend on April 21, 2015, 11:49:44 am
Quote
I guess it all comes down to what retirement means to you.  Some find their bliss in being free, creative, self-sustaining or whatever floats their boat and that’s how it should be. 

Personally, retirement for me would mean travelling the world and funding & getting involved in worthwhile expeditions.  I’ll start at Alaska and work my way through, obviously making stops in Monaco and Aspen just to balance my Zen-side with my material needs.  I can literally hear Patrick rolling his eyes. ::)

Good luck MrD, you seem content and happy and I'm sure many on this forum envy you and will follow your lead.

Cheers - early days, will see how it goes. But I would like to travel a bit more. While in the UK a did see a bit of Europe, Asia, Middle East and Australia. But would love to do some more - it irritates me that after spending 10 years in London I did not go to Kew Gardens or Wimbledon. At the timed seemed a bit pricey.

Selling up and doing an Orca certainly get's the imagination going though. Mine would have to include a camper van though...
Title: Re: Early retirement
Post by: Patrick on April 21, 2015, 12:00:12 pm
This is such a fun thread. Firstly @jaDEB I always thought you were in your thirties, now I hear you've got a 21yr old daughter  ???

@Mr_D, I love the storytelling, really excellent! I'm amazed to find someone who spends even less than I do per month, though I do live in Joburg and have a child.

@Moneypenny, believe it or not, my plans for early retirement are similar, though possibly more expensive. I'd like to sail around the world, stopping wherever it takes my fancy. And Monaco does take my fancy, as long as I'm not paying for a hotel room. While I would be able to go on a cheaper boat, my SO has other ideas and wouldn't settle for anything under the R1.5m mark, so I need a far bigger nest egg to maintain that  :whistle:

@Orca, do you pay dividends tax as a non-resident?

I believe that mathematically it makes very little difference if you take a percentage from selling shares, or the same percentage from dividends. I can see how psychologically with dividends it feels safer, but on the whole studies show it's identical. In South Africa there is a difference though. We tax dividends at 15% regardless of how small they are, while selling shares goes for capital gains tax which is a max of 13.3% but will often mean you pay no tax.

For example:
If you only have share sales and dividends as income, and you needed R120k income from a share which over time made 100%, you could sell the R120k, your capital gains would be R60k, less R30k for the exclusion, then divide by 3 to see how much applies to your income tax statement and you get just R10k. With the tax exclusion being up to R70 700 you would pay no tax at all.

In fact, to begin paying income tax if you're living on just share sales, and again assuming the share made 100% growth over time, you would need to sell:

R70700x3 +100% of that amount + R30000 + in shares, for a total of R454 200

That means if you we're selling shares you could live on R37 850 before you had to pay any income tax! If you earned the same in dividens, you'd only be left with R386 070 to live on, or R32 172.50 per month.

Quite an incentive to buy low dividend growth shares!

*Admittedly I've recently started buying the RAFIND which pays R2.6% dividends over the STXIND which pays 1.4%. The dividends weren't the real reason though, as I want to pay the least amount in fees. The STXIND has 0.45% fees while the RAFIND has just 0.12%, and the performance has been very close. However, now that I'm just reading my calculations above, I'm wondering if that was the right choice.
Title: Re: Early retirement
Post by: Mr_Dividend on April 21, 2015, 01:05:04 pm
You probably right Patrick - only funnily enough, only had CG explained to me this weekend, up and till then thought it was around 30% of all gains over R30K. Aaah, they joys of being slightly naive! But ja, on my low to no tax, CG is no big deal. And as you say, you could score VS dividend withholding tax.

But one thing you are not looking at is dividends(factual) and share prices(sentiment to a point) are worked out. Even with a market correction, you have a fair idea of what dividend MPC will pay next year - could you be so confident to say what the share price would be? To smooth out the curve you might feel the need to keep more cash or heaven forbid, a couple of years expenses in bonds! So we could get to some lost opportunity cost of setting the div tax.

But you are right, have plans to use my TFSA for dividends - (rather like grinrod div ETF) - but will hopefully dilute the 15% somewhat.
Title: Re: Early retirement
Post by: Orca on April 21, 2015, 01:50:14 pm
Almost there Mr D. CGT is calculated at 33.3% of your total gains after deducting the exclusion amount of R30k. This is then added to all other income. The effective tax on the CGT then becomes 13.3% if you are on the top tax bracket.
Pension tax vs CGT? On the same amount, I would think CGT wins hands down.

Dividend tax is generally taxed at source in most countries so I will still pay the tax in SA but the Double Tax Treaty caps it at 15% so should SA increase this tax, it would not affect me.

Camper vans are very popular in Europe. Here in Portugal there are many beautiful parks catering for this and it is free for as long as you like. Here in Viana there are a few such parks along the river and sea. Kids pitch tents there over weekends and school holidays. Looks like great fun.
Title: Re: Early retirement
Post by: jaDEB on April 21, 2015, 02:44:12 pm
This is such a fun thread. Firstly @jaDEB I always thought you were in your thirties, now I hear you've got a 21yr old daughter  ???

I am from Boksburg, you do the maths .....    :whistle:
Title: Re: Early retirement
Post by: Mr_Dividend on April 21, 2015, 02:54:56 pm
Ja, at my low income level it's pretty small, at most 6% - how depressingly, er, nice.  ;) I am not a fan of giving the ruling party money for first class flight and tires for their BMW SUV's no matter how many I save from their "cardboard palaces".

Orca, I think I read you fished - have you tried wetting a line in that part of the Atlantic?

Free campsites???? Just give me a sec to find a stick and an extra large handkerchief...for money I'll introduce car guards - setting myself up to eventually  becoming The Don of car guards - I like it!

Title: Re: Early retirement
Post by: Mr_Dividend on April 21, 2015, 02:57:52 pm
Quote
This is such a fun thread. Firstly @jaDEB I always thought you were in your thirties, now I hear you've got a 21yr old daughter  ???

I am from Boksburg, you do the maths .....    :whistle:

I just hoped you where stopped when you wanted to name her DRD Gold...  ;)
Title: Re: Early retirement
Post by: Orca on April 21, 2015, 03:51:24 pm
Car guards? No car guards here. In fact you don't even need to lock your car or even close the windows for that matter.
Title: Re: Early retirement
Post by: gcr on April 21, 2015, 04:11:27 pm
Car guards? No car guards here. In fact you don't even need to lock your car or even close the windows for that matter.


Well that settles it - smash a few car windows, grabs some goodies off the seats/out the cubbyhole and then - start a cottage industry of car guards :LHST:
Title: Re: Early retirement
Post by: jaDEB on April 21, 2015, 04:18:10 pm
I am an avid reader of true crime, serial killers and so on. Busy reading book on the Steenkamp murders in the griekwastad, Freestate, and also watch crime channel, allot.

Am always amazed, program USA, always start, we never have crime, leave doors open, bang, some1 kills a crap load of people. Next program, different city, we never have crime, leave doors open, bang, some1 kills a crap load of people.

Watched program, where in England, who also has no crime, the lady was murdered just before she got to the panic button. Uhh, u have no crime, but your house has a panic button. 

Best book, journey into the dark side, about killings in America that did not make the front page, but that was brutal of nature, written by FBI profiler.
Title: Re: Early retirement
Post by: Patrick on April 21, 2015, 07:22:43 pm
Well that settles it - smash a few car windows, grabs some goodies off the seats/out the cubbyhole and then - start a cottage industry of car guards :LHST:

Creating cash flow and future dividends  :LHST:
Title: Re: Early retirement
Post by: Mr_Dividend on August 02, 2015, 08:53:32 pm
Thought I would quickly "check in" to this thread.

Looks like we are going to shortly become a one car family - I guess that is a bit of an oddity in SA when both adults have licenses? Not really a big deal - I seriously only would use it for around 2000 - 3000km per year. As my wife works from home - it's pretty seldom that we need two cars at a given time, and I still have a motorbike to fall back on - but I live in a pretty small dorp and enjoy walking or cycling about.

Anyway, should have another R100k to invest in the next week - as my capital growth has been more than adequate I am planning to add some more income yielding shares - just whittling away at a list.

Otherwise this early retirement thing is going well - have imported and sold a few things for pocket money - I enjoy it and might be a better way to make a bit of cash on the side than producing things in the workshop which so far has been a non starter.

Title: Re: When do you have enough?
Post by: tmsf12 on August 04, 2015, 01:09:21 pm
...all dividends are used to purchase shares and when I can afford it I put more funds into my trading account by juggling my current account, card accounts, and bond account.

Sorry for dragging up all old post... you mentioned having a bond account and it got me thinking about your investment strategy. 
I thought zero debt and then invest was the way to go.  Care to comment?
Title: Re: When do you have enough?
Post by: gcr on August 04, 2015, 03:37:01 pm
...all dividends are used to purchase shares and when I can afford it I put more funds into my trading account by juggling my current account, card accounts, and bond account.

Sorry for dragging up all old post... you mentioned having a bond account and it got me thinking about your investment strategy. 
I thought zero debt and then invest was the way to go.  Care to comment?
My investment strategy could only be described as peculiar. It has 3 end objectives a) dollar millionaire b) have a portfolio of shares that upon my death ahead of my wife and my pension being reduced by 50% that the portfolio would provide an income to offset this reduction even if my wife stuck all the funds into a simple fixed deposit (which she is likely to do). At present my portfolio would give 97% of that objective based on my gross pension. c) to hold at least the equivalent of 30% of my total wealth offshore as a back up plan.
Presently I have facilities in place which I can tap into like current account, 2 card accounts and my bond where I can take close to R 200,000 quite rapidly if I needed to, this I may do from time to time if I want to, to buy a parcel of shares, I generally use my bond which has a limit of R 100,000 and my current account - both have low interest rates. This last year instead of buying shares I reduced my car loan commitment by R100,000 from my bond and current account plus some R50,000 accumulated savings. Next July I will do the same using the same bond and current account and some accumulated savings. In this fashion I want to pay my car off in 3 years even though I financed it over 72 months. In my case I paid my bond off fully before I retired 10 years ago, but I challenged my bank when they wanted to close off my bond at age 65 - I now have a bond to age 75. So in essence though I am a very serious investor I also juggle my funds around, and, I use the banks funds to meet short term objectives. As to debt both my cards are zeroed each month on payday, I subscribe to MNet, MWeb, have insurance for my car and home have no life insurance policies as all of my policies were endowment policies which paid out when I turned 55 - I lock in my LA proceeds into a Coronation T 20 mutual fund and all my insurance policy and the RA funds premiums that I was paying are now directed into the same U/T. Having watched my parents pension and medical expenses diminish on the one hand and escalate on the other my focus is to ensure that my life style as I have it now is not compromised when I get to my 80's and 90's (history of longevity in my family)
So this is not a particular strategy but more of trying to seek out the big picture and to plan accordingly knowing full well that the market is going to rise and fall depending on what's happening in the world around us   
Title: Re: Early retirement
Post by: tmsf12 on August 05, 2015, 07:34:10 am
@gcr, Thanks for explaining (in detail) :)
Title: Re: Early retirement
Post by: gcr on August 05, 2015, 09:34:49 am
@gcr, Thanks for explaining (in detail) :)
@tmsf12 - no problem - just remember that this works for be it may not work for others because their circumstances are different
Title: Re: Early retirement
Post by: Fawkes85 on October 10, 2015, 07:19:05 am
@Orca

What did you have to do to let whatever company you have your share trading/investing account with know you are abroad and that they should cap your dividend withholding tax at 15%? I own some REITs and as I understand it, as I work and pay taxes abroad and not in SA, I have to pay DWT on the dividends I receive from said REITs. I called FNB twice to inform them that I live abroad and that they should deduct it from my dividends. Each time they said they will email me a form I need to complete but I never received the form. I think GMail thinks it's spam and just deletes it before it gets to me. So next month I will be going to SA for some unfortunate reasons and since I am not getting the forms I reckon I will just go to the bank and get it sorted there. My only concern is that once I get there they will maybe want more documents from SARS or something. I will only be in SA for a week so I am not gonna have a lot of time to do the runaround getting this sorted especially considering that my time there is meant to be spent with a sick family member.

Can you give me a heads up on anything I should work on preparing now before I go there? I just want to be done with this. I want to pay whatever taxes I have to and not a cent more. Nkandla is big enough.

While we are on the topic of taxes, can anyone recommend any good SA tax forums? After many months of of self-study I am finally starting to wrap my head around this investing thing but taxes are still all Greek to me (But then again it would seem taxes are Greek to the Greeks apparently so I am not feeling too bad about it). Either way I want to understand this. I am in no mood to have a run in with that rogue SARS squadron I have been reading about these last few months.

On a side not @Patrick

You made a good comparison of how one can actually make more money going for growth compared with dividends. But for someone like me I shudder to think that if I go for growth the will eventually come, like when I retire, when I am going to have to start selling those shares to support. What makes me shudder is the fact that I will have a finite amount of shares to sell without ever knowing when I will go through the pearly gates. So it will make me worry (it already does actually) about what if I end up selling everything up much too soon. That is why I like the dividend approach. Maybe it will work out a bit more expensive(ly?) but for me it's like the gift that keeps on giving without me having to chip away at my capital. I reckon if I spend the next 20 years doing as good a job of saving as I am now and investing those savings in solid companies with good dividends, and ALWAYS reinvesting those dividends, then by the time I retire I will be earning a nice tidy sum from those dividends. Couple that with a good pension and I think I will be OK. But at the end of the I guess what is the most important is doing whatever makes you sleep the best at night and the dividends approach makes me sleep better than the growth approach
Title: Re: Early retirement
Post by: brad on October 10, 2015, 08:36:50 pm
Hi fawkes85
Gmail do not delete any e-mail.On the left of the gmail screen click on "more"and then click on "all mail".If its not there than you click on on spam.You should find it there.
Brad
Title: Re: Early retirement
Post by: Fawkes85 on October 10, 2015, 09:19:06 pm
Thanks. But yeah I checked those things. I don't mean GMail deleted per se. Meant more like Gmail just flagged it as definite spam and just flat out maybe blocked it from even reaching my spam folder. I don't know. Either way I didn't get it  :(
Title: Re: Early retirement
Post by: Mr_Dividend on October 11, 2015, 07:12:36 am
BTW Fawkes - as you know I am also a fan of the dividend method mainly for the reason mentioned. That said I am happy to break those "rules" fairly frequently as long as I feel that the company stock I am buying will increase their dividend quickly enough to be worth it in a few years. Buying in dips helps. For instance bought Capitec in a dip just over a year ago and am now getting a half decent 4% yield in a company that I am sure will grow the yield at well over 10% a year for many years. Same with MPC and RMI.

So don't limit yourself to just what the yield is now, might be worth doing a bit of forcasting. I also keep 10% in a separate trading account for shares that didn't make it into the main account for one or other reason, mainly because lack of dividend - APN, NPN, Trusco, taste, zed, whl, spar, fnb, adi,eoh,dsy, psg

Personally, there are just so many great shares to buy - you need to relax the rules here and there.

BTW, if you looking at buying now for divided - two on slight dips would be MPC and MMI - MMI often pays out healthy special dividends, I might add some more - and in reits, TWR
Title: Re: Early retirement
Post by: Patrick on October 11, 2015, 12:07:42 pm
On a side not @Patrick

You made a good comparison of how one can actually make more money going for growth compared with dividends. But for someone like me I shudder to think that if I go for growth the will eventually come, like when I retire, when I am going to have to start selling those shares to support. What makes me shudder is the fact that I will have a finite amount of shares to sell without ever knowing when I will go through the pearly gates. So it will make me worry (it already does actually) about what if I end up selling everything up much too soon. That is why I like the dividend approach. Maybe it will work out a bit more expensive(ly?) but for me it's like the gift that keeps on giving without me having to chip away at my capital. I reckon if I spend the next 20 years doing as good a job of saving as I am now and investing those savings in solid companies with good dividends, and ALWAYS reinvesting those dividends, then by the time I retire I will be earning a nice tidy sum from those dividends. Couple that with a good pension and I think I will be OK. But at the end of the I guess what is the most important is doing whatever makes you sleep the best at night and the dividends approach makes me sleep better than the growth approach
At the end of the day it's total return that really matters. "If you're earning 10% over inflation, it doesn't matter if you get 2% from dividends, and 8% from growth, or 8% from dividends and 2% from growth. Well it could make a tax difference, but if you build that in then it's the same.

You can't really run out of shares if you withdraw less than the growth, even for an infinite amount of time, as each year you sell less shares for the same money. A quick excel sheet will show you that. Of course you could end up in a situation where you own Berkshire Hathaway which pays no dividends and is valued at $200 000, meaning you might have to sell the last one, but in reality most shares nowadays would split long before they got to that value. Even if that was the case, with unit trusts, and now with easy equities, you could actually sell a fraction of a single share.

Your assumption about being ok after spending 20 years saving as much as you do, with dividends re-invested, and a pension on top of that is wrong. You're not going to be ok, you're more likely going to be very wealthy!  :TU:

On a side note. Now that I've moved and will continue to move away from my stupid unit trust account into DIVTRX, I'll likely be earning enough in dividends not to need to sell any shares. I never planned it that way, but that's what happens when you stop giving 1.7% to the fund managers every year  :wall:
Title: Re: Early retirement
Post by: Ron on October 26, 2015, 02:43:55 pm
This thread speaks directly to me in discussing my present dilemma of trying to rebuild a portfolio, having recently sold (ie "locked in losses") a heavy exposure to resource shares in Aug (plus a couple of winners which suddenly looked expensive... not a proud moment).

Should I be focusing on growth or dividends? The instinct to "swing for the fences" to recoup my losses has finally been tempered by weeks of indecision (ha ha)  - although growth remains my bias, while keeping 3 years living expenses aside (by way of introduction, I lead a lifestyle remarkably similar to Mr Dividend)!

To sum up points already made, peace of mind will cost you either way: lost opportunity costs on the cash set aside, or lower capital growth. I have put some money into the DivTrax ETF which seems to strike a middle ground... comm on its way Patrick!

Unfortunately as may have been pointed out, dividend income is a more tax efficient income stream than selling shares, at least within 3 years - as you'd be regarded as a trader and taxed at your marginal rate. Then there's stockbroker fees...

Any further thoughts from the community would be welcome.
Title: Re: Early retirement
Post by: gcr on October 27, 2015, 09:13:17 am
The debate as to whether you invest to achieve a dividend stream or invest to achieve capital appreciation will go on forever, because a number of factors are missing the major one being that we are not privy to the persons circumstances either financially or physical (health). There are always costs associated with purchases whether it be brokers fees or fees to purchase SATRIX and other types of instruments.
When the markets turns down you may well see your share prices reduce quite significantly, but by the same token if the share price does drop you may well find that the company passes its dividend distribution - the resources has experienced this many times in the past.
Also without knowing a persons circumstances it is impossible to advise or recommend what path that person should pursue - especially if the person is "on pension" I used to have SATRIXDIV in my portfolio and dumped them as they showed limited growth. When I sold out (May 2013) they were at R 2.05 and are now trading at R 2.09 and their dividend stream was not something to write home about - so its not an investment I would return to.
The individual who is trying to decide which path to walk has a difficult journey as forumites don't know access to your lifestyle and/or circumstances and thus can not provide any real proposals or options to be considered. Also of bigger concern is that people on this forum will provide their opinions based on their own circumstances and they will by nature be very different to other forum commentators. If I look at my own circumstances my comments are based on my experiences, decision making, and my particular financial disposition and that my investment strategy is for today or the next five years, but has a horison for 12 and more years hence
My personal recommendation to those who are undecided is seek out a highly qualified and pragmatic investment advisor who is not peddling a companies products (on which he/she gets commissions) and lay out your thinking and logics and then get the advisor to given his qualified views - he/she mapping out benefits of taking up different options to your views.
Just my opinions - do not act on them as cast in stone - we are all uniquely different as are our circumstances   
Title: Re: Early retirement
Post by: Patrick on October 27, 2015, 11:10:11 am
This thread speaks directly to me in discussing my present dilemma of trying to rebuild a portfolio, having recently sold (ie "locked in losses") a heavy exposure to resource shares in Aug (plus a couple of winners which suddenly looked expensive... not a proud moment).

Should I be focusing on growth or dividends? The instinct to "swing for the fences" to recoup my losses has finally been tempered by weeks of indecision (ha ha)  - although growth remains my bias, while keeping 3 years living expenses aside (by way of introduction, I lead a lifestyle remarkably similar to Mr Dividend)!

To sum up points already made, peace of mind will cost you either way: lost opportunity costs on the cash set aside, or lower capital growth. I have put some money into the DivTrax ETF which seems to strike a middle ground... comm on its way Patrick!

Unfortunately as may have been pointed out, dividend income is a more tax efficient income stream than selling shares, at least within 3 years - as you'd be regarded as a trader and taxed at your marginal rate. Then there's stockbroker fees...

Any further thoughts from the community would be welcome.
Mr Div was actually the first one to highlight DIVTRX here, so send him your cheque. GCR is right, it's all relative to your situation. If you do decide to go see a financial adviser, make sure you pay them by the hour, and not a % fee, otherwise you WILL get screwed in the long term.

With some reading though, you could pick up pretty decent knowledge, which is quite satisfying.

Are you also no longer working? How did you manage that?
Title: Re: Early retirement
Post by: Ron on October 27, 2015, 12:49:17 pm
*Ah, just picked up your reply now Patrick. Yep, will probably have to speak to someone I can trust, but folks around here also seem to know a thing or two - and it's gratifying to know there are/were others in a similar situation.

THANKS for your thoughtful response gcr - your points are all very fair and valid. I guess a financial advisor would be my next stop, but I know there are some pretty astute forumites here who I'm sure would be able to provide some direction as well with level-headed, common sense advise - based, of course, on my particuar circumstances, which I'll detail below. Right now I'm going in circles with conflicting thoughts, which of course only increases my anxiety (beer helps though). Obviously any advise will be treated as just that; I realise that all paths carry risks, especially in these markets. Ok here's my situation.. I know people will scoff at my tight budget but Mr Dividend's earlier post has provided some encouragement!

I'm 46, unemployed, live alone and lead a frugal lifestyle, but probably not frugal enough. I'm debt free, own my home & an investment property which brings in a rent of R5700pm. My expenses come to R13 200 (no medical aid etc), leaving a shortfall of R7 500. I have savings of R1 200 000 & that's it. It's sitting mostly in my broker's account earning piddly interest until it's told where to go, but it includes positions in Satrix SWX (50G); Coreshares Div Aristocrats (130G); Discovery (75G) & Balwin (25G).

I know that any advise will be accompanied by cold hard figures that will be discouraging but I'm inspired by folks like Mr Dividend who's been able to make ends meet by building a dividend portfolio. Seems that this is my best option? The alternative is to bank, say, 4 years expenses to account for market volatility, which will allow a wider scope of investment - ETFs like the Indi25 but particularly international ETFs like the dbx trackers, and perhaps an asset manager like 36One to manage the rest?

Extra income - when my tenant's lease expires in 5 months I'll move there and rent out my current home which should bring in an extra 2000. The investment property's yielding 6% after expenses (based on worth of about R620 000) and will probably sell it, especially if things go horribly wrong. I'd get more for my current home but would hate to let it go. And my boet may be able to pay me 2000 pm in the new year to help him out a bit - so that R7 500 shortfall will be reduced by 2 to 4 grand.

So that's my life as it stands. Decisions, decisions. Again, any broad, or detailed advice based on these figures would be most appreciated!
Title: Re: Early retirement
Post by: Fawkes85 on October 27, 2015, 01:19:16 pm
Ok. My situation is much different from yours. I am 30 and I have a job where I manage to save good money. The fact that you own two homes where you do not owe any money and have savings much more than mine would indicate that you are more experienced and knowledgeable than me. So clearly we are in different positions thus my opinions might not necessarily appeal to you but here are my thoughts:

Ever considered selling that second house and investing in a high dividend yielding REIT instead? At current prices TEX has a dividend yield of 9%. And the upside of having your money in a REIT, as opposed to an investment property, is that you have fewer expenses. I am sure with your current investment property you have expenses such as property tax/levies, homeowners insurance, maintenance fees, etc. With your money in a REIT you will not have any of those expenses which will mean you get to keep more of that 9% dividend as opposed to the income you get from your current investment property.

That is basically what I am doing now. For a large part of my life I have always wanted be invested in real estate. But the more I looked into buying the less sense it made to me because, even if I rent it out, I will get so little in return after all those expenses. Then I found out about REITs and I started looking into them. What sold me on them was when I compared being invested in a REIT as opposed to be buying a flat I was looking at. It was a small bachelors flat which I could have bought for R450 000 (yes I know that is not all that expensive but it was in my small hometown and not in the city). I would have been able to rent it out for R2500 at best which would have given me an annual income of R30 000. But after all the taxes, insurance premiums and possible maintenace costs I reckoned I would have eared closer to R24 000 for the year. But if I took that same R450 000 and invested it in a REIT such as TEX which paid a 9% dividend yield I would have earned R41 500 per annum before income tax deductions being made. Income tax deductions of course being the ONLY expense. The winner for me was clear.

The only downside to a REIT over buying an investment property is of course the fact that the stock exchange is more volatile I guess. But let's be honest, as 2008 showed so can owning property be.

EDIT: Also dividends can come down or be cut etirely whereas I guess you can control the rent of a property. But then on the flip side you can be without a tenant for months and not get an income either.
Title: Re: Early retirement
Post by: Samurai on October 27, 2015, 02:00:43 pm
Dont know how relevant my contribution will be as I'm still slaving away all day, hopefully FI by my late 40's with one of those russian brides.

Have to agree with REIT's as they pay decent dividends and you wont have the hassle of fixing small problems on your property or dealing with late payers. Also REIT's like Growthpoint can offer good hedge value, seeing as they own a portion in Growthpoint Australia.

Try this website its american but some princples stay the same,  http://www.dividendmantra.com/
Title: Re: Early retirement
Post by: gcr on October 27, 2015, 02:28:25 pm
Just a thought as I have not studied what is or isn't in TFSA - but can you buy into a REIT type account through the TFSA. If permissible you may then reap the benefit of a decent dividend income and then also get a tax break.
Maybe someone who is familiar with TFSA could comment
Title: Re: Early retirement
Post by: Fawkes85 on October 27, 2015, 02:31:46 pm
As far as I understand only ETFs are allowed in TFSAs. So what you can do is buy into the PTXTEN or the PTXSPY. Both those ETFs are only invested in REITs but their dividend yields are not much to write home about.
Title: Re: Early retirement
Post by: Patrick on October 27, 2015, 02:54:39 pm
Try this website its american but some princples stay the same,  http://www.dividendmantra.com/
I quite like Dividend Mantra, and think Jason is a great guy and excellent writer, but his investments have done worse than the S&P 500 over time, so he would actually be wealthier now without putting in all that effort... The same holds true for Donald Trump. Apparently if he invested his inheritance in the S&P500 and sat home watching Jerry Springer he'd be twice as wealthy as he is now! But yeah, great blog, and a great way of thinking about building wealth.

As far as I understand only ETFs are allowed in TFSAs. So what you can do is buy into the PTXTEN or the PTXSPY. Both those ETFs are only invested in REITs but their dividend yields are not much to write home about.
Don't buy PTXSPY, it's got a TER of 0.58% when you can get the Stanlib SA property index which does exactly the same thing and has a TER of 0.36%. The difference in fees gets taken off the dividend payout, so the stanlib sapy will pay you more.

Problems like this really interest me Ron. I've seen too many people I know get retrenched and end up literally having to beg at their families door for a place to sleep and some food to eat. So for the last 10 years or so, I've often played a game of what if I lost my job now.

My retiring at 40 blog post is pretty much the way I would handle it if I was in your situation: http://investorchallenge.co.za/can-you-retire-by-40/

I would try and do is reduce costs though. Housing is probably sucking up the most of your cash, would you consider taking a housemate, or renting a room somewhere? Depending on the circumstances, I'd even live on a cheap boat, or even in a van, but I'm extreme that way.

If I wasn't sure my money would last forever I'd also pick up an easy, fun job. I used to be a barman when I was a student, and even then I could make R5k a month, and that was 15 years+ ago.
Title: Re: Early retirement
Post by: Orca on October 27, 2015, 03:26:49 pm
Living off dividends is not as tax efficient as living off the occasional sale of high growth stocks. Patrick with his clever calculator has proven it on this thread already. :TU:
For the next 4 months you pay 15% withholding tax on divies. Thereafter it could be 25% putting it in line with the rest of the western world.
Normal tax on Capital Gains would be under 13% but very likely closer to zero.

Our living standards differ but if I were in Ron's shoes, I would pay off any debt asap then sell both properties. This would give him R2,7m in cash. Owning primary property is not an investment but a standard of living expense.

With R2,7m invested in no more than 2 ETF's, you could live very comfortably. The 4% rule is in my view a figure applicable to investments in cash and bonds or for people living in emerged market countries. I would raise that figure to 7% for emerging markets with no holdings in cash and bonds.

I have been retired for close on 2 years and despite the expense of setting up a new home in a different country plus 1 flat market year, my portfolio has grown by R400k.
Ron is alone and I have a wife and we both have private medical insurance.
Title: Re: Early retirement
Post by: Mr_Dividend on October 27, 2015, 03:31:44 pm
Hi Ron - I always like these real world examples!

My 2c

Firstly, it would help if you could trim your expenses a bit - what, you eat cavier for breakfast, lunch and supper??  :))  I also second selling your second house, for the same reasons, but you say the investment house is R620K, I am guessing the house you are in would go for a bit more? Taking a stab in the dark, lets say R800K. So all up you would have around R2,1mill to invest. So 7% would get you R12,250p/ and 6% R10500 - this of course is not including tax.

6% is nice and easy, guess around 50% REITS/ 50% Div Stocks: 7% and you probably going to be around 75% in property, but still doable.  You cannot really buy ETF's for this - the dividends just are not there. Lot's of smaller REITS give excellent dividends so it becomes a bit of a balancing game - couple that I like and own, arrowhead, sacorp,TWR, TEX, Fairvest, Safari, accelerate - others are Rebosis, Delta. Decent dividend paying stocks (look at the special dividends as well) AVI, MMI, BTI,VOD, most financial/banks/insurance.

And of course, do not forget the overseas REITS and get yourself hedged!

Would only use TFSA for stocks and save 15%, use the REITS for your income cap (R73K) -

The nice thing about the dividend method is you do not really worry about what the value is (as you have no intention of selling) you just keep an eye on the dividends and make sure they are increasing - generally at around 10% , so you should have more to play with year to year. And you will never run out as you not selling the capital. It would make me mad having to decide when and how many shares I need to sell as well as watch my "stache" fall in a falling market. But each to his own, I am a bit of a worrier, so this method suites me down to a T. I do have a small account (under 10%) with my more speculative shares.
Title: Re: Early retirement
Post by: Fawkes85 on October 27, 2015, 05:31:01 pm
Thanks for the vote of confidence. And Mr_D was right. You should definitely also look into international REITs or REITs with international exposure. My personal favourite is RPL. They payout their dividends in GBP so as they steadily increase their dividend payout it is compounded be the Rand's steady decline against the Pound.

Must give you a word of caution though. Be sure to look at a REIT's balance sheet before you invest. I have looked at pretty much every single REIT listed on the JSE and the majority of them have more liabilities than they have assets. So they pay out great dividends but they are seriously in debt. They have more debt than they should be having. And considering, as an investor, that you are an owner in the company that debt becomes your debt. This is just my personal preference, but I avoid investing in companies who are in the red on their balance sheets like I avoid shaving more than once a week. I hate debt and that is why I don't have any in my life. I understand that companies will always have debt and there is no avoiding it but I expect them to keep it under control and live within their means. A company with so much debt indicates poor management to me. Especially when they continue to payout high dividends while finding themselves in such a situation.

That is why I am invested in TEX and RPL. They have their balance sheets under control. Or at least they did the last time they released their financial statements. RPL will be releasing their full year results tomorrow so we will see if I still like them then.

Best of luck to you and I hope you get this sorted.
Title: Re: Early retirement
Post by: Fawkes85 on October 27, 2015, 06:01:01 pm
If by two ETFs you mean PTXSPY and PTXTEN I guess the PTXTEN is the better one. It has equal weightings which from what I hear is best. It has also had good performance since inception.
Title: Re: Early retirement
Post by: Ron on October 27, 2015, 06:19:01 pm
Sorry Fawkes, the enquiry was directed at Orca; he mentioned 2 ETFs but perhaps just making a broad point. Would be interesting to hear recommendations though. By the way my figures presume I get the asking price of my property, who knows may be too optimistic once agent's taken their cut (add to long list of disadvantages to REITs). Oh, and hold onto my part-time job, but can't be too pessimistic. Pretty tight though, gotta admit.
Title: Re: Early retirement
Post by: jaDEB on October 27, 2015, 06:49:24 pm
No, apologies, I am saying you are doing the right thing. And it is interesting what you are doing, once again did not intend to insult you. 
Title: Re: Early retirement
Post by: Orca on October 27, 2015, 07:28:35 pm
@Ron. The favorite ETF's on this forum are STXIND and DIVTRX. (so far that I see).
The STXIND has the top 25 Co's and weighted by market capitalization.
The DIVTRX has about the same number of Co's but the management chooses Co's that keep increasing their dividends.
Co's that keep increasing their dividends are normally the ones that are growing from strength to strength and have good fundamentals and management.
I will post some charts here for comparison. Although my favorite one is DIVTRX, it is only a year and a half old and STXIND is skewed by the developments with SAB that has a heavy weighting in it.   
Title: Re: Early retirement
Post by: Orca on October 27, 2015, 07:51:22 pm
Here is a 5 year chart of STXIND (shaded) compared to PTXSPY and PTXTEN. I could not include DIVTRX due to it being only 1.5 years old.
The STXIND has gained twice more than the other 2.
Title: Re: Early retirement
Post by: Ron on October 27, 2015, 07:53:56 pm
@Ron. The favorite ETF's on this forum are STXIND and DIVTRX. (so far that I see).
The STXIND has the top 25 Co's and weighted by market capitalization.
The DIVTRX has about the same number of Co's but the management chooses Co's that keep increasing their dividends.
Co's that keep increasing their dividends are normally the ones that are growing from strength to strength and have good fundamentals and management.
I will post some charts here for comparison. Although my favorite one is DIVTRX, it is only a year and a half old and STXIND is skewed by the developments with SAB that has a heavy weighting in it.

Thanks Orca. I have a R130G position in DIVTRX after reading about it here. They've recently increased their holdings with the rebalancing & a number of "iffy" shares have entered (mining shares over 8%) which I'm not too pleased about but that's how the cookie crumbles. But I agree with the approach and that's ultimately how to evaluate an ETF.

I was briefly in the INDI & got out when I read somewhere that if it was a stock market it would be the most expensive in the world. Well, it's expensive for a reason - its constituents are absolute winners and, crucially, have international operations. Still, I wonder if it wouldn't be better to split/replace an investment in this ETF with a successful, moderately aggressive fund manager like 36One? If you believe a correction / bear market is not far away, high growth stocks will fall further & you probably want a brain to handle the fallout better. In a bull market ETFs outperform most fund managers, but in a bear market the pros have an upper hand. Just a thought.
Title: Re: Early retirement
Post by: Orca on October 27, 2015, 09:06:30 pm
I have never liked miners as they are prone to strikes, accidents, exchange rate and the price of the commodity. They are for trading only. But 8% does not bother me much at this stage.
Gold price in ZAR and Dollar terms has increased over the past few months and indicates a possible rally for all commodities. I would have liked to be in NEWGOLD (GLD) for the past month or two.
All the mining stocks held in DIVTRX have reversed lately and made good gains. (not today though)

As to Managed portfolios and UT's, I must add this;
During 2008/9 I had all my pension money with Eqxxx Fund Managers and Imxx. I watched my precious pension dwindle down by minus 45% and they did nothing about it. There is a reason for that. Fund managers will not or perhaps are told not to sell in a crash as it will attenuate the crash. This is obvious.
I eventually instructed them to sell. Unfortunately it was at the very bottom. Since then, I have gone solo.

 

Title: Re: Early retirement
Post by: Mr_Dividend on October 28, 2015, 06:53:18 am
I think it's a fair point that you could use capital gains to your advantage. I must also add, just because you set up a dividend based portfolio, doesn't mean you do not get any growth. Many of my shares, bought for the dividend, have done very well - CPI, Hyprop, PGR, BTI, Rockcastle, Redefine inter all for me have grown between 50 - 200% in under 3 years. And property as a class out performed equities again - has done a few times over the last 5 years.

I think the idea is to find a system that you comfortable with - but now matter what you do, it will be some sort of hybrid.

I have both the INDI and Divtrx in my TFSA - Like the higher div, the company mix and the fact that the mix is relatively evenally allocated in the DIVtrx. I own many of the shares in the divtrx in my portfolio, because besides initial yield, they chosen also for there ability to grow their dividend - I think it's a good sign if a company can grow their dividend yearly.
Title: Re: Early retirement
Post by: jaDEB on October 28, 2015, 07:33:05 am
When you set up your portfolio for dividends, do you also look at exposure - RSA vs Outside RSA.
Title: Re: Early retirement
Post by: Mr_Dividend on October 28, 2015, 07:38:30 am
When you set up your portfolio for dividends, do you also look at exposure - RSA vs Outside RSA.

For me that was important - have around 25% of my portfolio reporting (and giving dividends!) in dollars/pence/euros. so fairly well hedged when you think that many of the other SA companies will also have and overseas element.
Title: Re: Early retirement
Post by: Ron on October 28, 2015, 07:43:17 am
Nothing pedestrian about those returns Mr Div! It's reflected in the relatively low yields you'd be getting from most REITS if buying now, so not particlarly cheap but what is? I like the class though; in fact I believe that they've outperformed all asset classes inc. equities over the last 15 years (a fact which is perplexingly little publicised).

Tax isn't high on my list of considerations (not like I'm earning a fortune!) but CGT certainly seems more tax effiecient than div payouts, presuming you're not regarded as a trader, which I always thought was selling within 3 years?
Title: Re: Early retirement
Post by: Fawkes85 on October 28, 2015, 07:48:07 am
Dividend taxes are steep but you should remember you don't pay Div taxes on REITs. All dividends you earn from REITs are taxed on your income instead and since you do not work and it is your only come your taxes wouldn't be so high.
Title: Re: Early retirement
Post by: Fawkes85 on October 28, 2015, 08:31:06 am

Gold price in ZAR and Dollar terms has increased over the past few months and indicates a possible rally for all commodities. I would have liked to be in NEWGOLD (GLD) for the past month or two.


Don''t worry too much about not being invested in gold. Watch this documentary and you will see why. When you invest in gold you are basically investing in thin air.

https://www.youtube.com/watch?v=SWsMxEDgT0Y
Title: Re: Early retirement
Post by: Mr_Dividend on October 28, 2015, 08:58:50 am
If you bored, here is what I bought: of course, there was a bit of buying and selling as well - some good selling (Kumba) and some not so good (steinhoff, bought at R25 sold at R23) - live and learn hey! 1st share bought was Redefine Inter  in Jan 2013 - so still a couple of months before I can claim CGT! But in the three years money in would be broken down - Thumbsucking now, but around 30%/60%/10% - dividends have been taken out for the last two years.

Share   Code   Profit (Loss) (%)   % of Equities
ACCPROP   APF   -1.05   2.15%
A V I   AVI   40.47   5.54%
ARROW A   AWA   28.23   4.02%
BATS   BTI   68.96   2.58%
CORONAT   CML   -5.68   7.08%
CAPITEC   CPI   211.44   6.87%
DELAFRICA   DLA   -2.19   1.18%
FAIRVEST   FVT   -0.2   2.16%
GRANPRADE   GPL   3.15   1.12%
GROWPNT   GRT   10.29   2.53%
HYPROP   HYP   49.1   8.54%
INTUPLC   ITU   38.9   3.50%
MMI HLDGS   MMI   16.45   1.47%
MR PRICE   MRP   31.52   6.30%
MTN GROUP   MTN   -27.64   3.18%  ???
NEPI   NEP   21.02   1.85%
OLDMUTUAL   OML   38.67   3.92%
PERGRIN   PGR   55.19   2.60%
REDEFINE   RDF   25.09   2.74%
RHODES   RFG   30.6   2.22%
RMIH   RMI   39.59   3.06%
ROCKCASTLE   ROC   62.87   4.28%
RI PLC   RPL   53.94   5.77%
SA CORP   SAC   29.15   2.65%
SAFARI   SAR   -9.85   1.89%
SANLAM   SLM   0.52   1.62%
SPURCORP   SUR   7.62   0.63%
TASTE   TAS   -35.33   1.13%
TEXTON   TEX   -10.41   2.04%
TOWER   TWR   -7.87   1.09%
VODACOM   VOD   19.87   3.23%


Should add - excluding last two year dividends, up 28.5% (was over 35%) - if we call it over two years, it's alright,not shooting the lights out though -  do get 34% if I include the dividends taken though, which is more inline with the market.
Title: Re: Early retirement
Post by: Ron on October 28, 2015, 09:36:36 am
Thanks for sharing  :TU: very cool. Wish you could bundle it up and sell it to me as an ETF!

Sjoe, 31 stocks @ I guess initial 3% initial equal weighting - I'd have to get used to that. But ja, on a R1M investment that's 30 000+ each so at least you're not hit with minimum fees when purchasing. Obviously the product of a lot of time & dedication.
Title: Re: Early retirement
Post by: Mr_Dividend on October 28, 2015, 09:47:10 am
BTW - I track my dividends on what I originally paid for them - not the current cost. My financial year start Sep to end of August - just they way it worked out. Some of the good ones from last year.

Growthpoint - 8.94%, Redefine 8.14, Red inter, 6.72, SACorp 8.85%, Arrowhead 9.21, CML 7.51, PGR 7.54, AVI 8.4, MMI 9.12, MTN 5.78, VOD 9.2

And I have no problem buying lot's of shares - I am certainly not a good enough stock picker to always pick winners - besides, I like to spread my risk and I enjoy reading sens and I would be more than happy if my portfolio kept up within spitting distance of the market. I doubt I will ever beat it. I do beat it on dividend yield though.
Title: Re: Early retirement
Post by: MoneyChief on November 05, 2015, 02:13:13 pm
Watched program, where in England, who also has no crime, the lady was murdered just before she got to the panic button. Uhh, u have no crime, but your house has a panic button. 

I lived in England for 10 years, trust me there is a lot of crime. In fact, if you live in a nice subburb here in SA and then move to London to "get away from the crime", you will actually experience an increase in crime.

Here are the real time stats from the uk police site. Small area in london, 633 reported crimes in September alone:

https://www.police.uk/city-of-london/cp/
Title: Re: Early retirement
Post by: Mr_Dividend on November 05, 2015, 02:56:44 pm
You probably more likely to get mugged/assaulted in the UK, more likely to be murdered in SA and 50/50% when it comes down to theft - from houses or cars.

*******Thumb sucking stats courtesy of me having lived there for 10 years - so a bona fide expert in the field...  ;)