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Post by Fletchsmile on Apr 21, 2015 14:13:19 GMT 7
It is very difficult to get 3% after tax return on "safe" investments in the current market. That may change in the not too distant future. Even if you are willing to bring most of your money to Thailand (which I am not), earning an after tax 3% is a real stretch. I am retirement age but not yet retired. I have 2 school aged children in private international school. I need $150,000 after tax each year to "live comfortably" in Thailand, and enjoy a few of the finer things. Social Security will pay me (and my children) about $40,000 per year until I die and my kids reach 18. So, net, I need to generate $110,000 of income. I do not want to invade principal, so I need liquid, investable assets of $4 million, assuming an after tax return of 2.75%. Actually, by investing in relatively safe longer term (there goes the safety aspect) tax free municipal bonds I can generate more than a 2.75% after tax return (closer to 4%, which reduces the required investable assets to $2.75 million)), but, honestly, $4 million does not seem like near enough. Yes, kids over here can make a big difference to expenses, if you send them to an international school. Back in the west I'd be happy for them to attend a normal school I don't have to pay for. In Thailand, I'd rather not put them in a Thai school, so we end up with the international option by default.Also we want to give them the choice of being Thai or western in their outlook on life/ nationality in future etc. School fees currently add about THB 100k a month to our expenses, and is only likely to increase. It's like having a mortgage, each year I pay a lot, and next year they put the prices up by around 4%, so feels like I'm paying mainly interest. I've always said though that a vasectomy gives probably the best financial return of any product in Thailand, with an extremely short payback time. THB 15k a few years back saves me THB 500k + a year in school fees alone Cheers Fletch  |
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Post by Fletchsmile on Apr 21, 2015 14:23:10 GMT 7
Ball park numbers for me, to live the comfortable lifestyle I want are: THB 250k a month outgoings. So THB 3mio a year. School fees are about THB 100k a month of that, so once the kids are grown up THB 150k or say THB 1.8mio a year would be fine. That excludes the home already paid for, and keeping a couple of years or so expenses in THB and foreign cash. I reckon on being able to draw about 4% from investments and still have the capital keep pace with inflation. So that means capital of 25 X monthly outgoings. So: THB 3 mio x 25 = THB 75mio while the kids are at school dropping to THB 1.8 mio x 25 = THB 45mio once they finish/ move schools. So somewhere in the range of THB 45mio to THB 75mio + house + cash reserve I might also get some money from the UK pension lottery that reduces that Also assumes I pass on the capital when I kick the bucket, as I'd like to give the wife a secure future, and kids a decent start, as Thailand isn't such a great place if you've no money... Cheers Fletch |
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thailaw
Crazy Mango
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Post by thailaw on Apr 30, 2015 10:00:52 GMT 7
Ball park numbers for me, to live the comfortable lifestyle I want are: THB 250k a month outgoings. So THB 3mio a year. School fees are about THB 100k a month of that, so once the kids are grown up THB 150k or say THB 1.8mio a year would be fine. That excludes the home already paid for, and keeping a couple of years or so expenses in THB and foreign cash. I reckon on being able to draw about 4% from investments and still have the capital keep pace with inflation. So that means capital of 25 X monthly outgoings. So: THB 3 mio x 25 = THB 75mio while the kids are at school dropping to THB 1.8 mio x 25 = THB 45mio once they finish/ move schools. So somewhere in the range of THB 45mio to THB 75mio + house + cash reserve I might also get some money from the UK pension lottery that reduces that Also assumes I pass on the capital when I kick the bucket, as I'd like to give the wife a secure future, and kids a decent start, as Thailand isn't such a great place if you've no money... Cheers Fletch I agree with everything in your post except your being able to generate "4% from investments and still have the capital keep pace with inflation". Assuming inflation is between 2 and 3% (depends on where you are measuring it -- low for Thailand and probably about right for the US and Europe right now), that means that you can earn between 6% and 7% after tax return on investments. Not sure where or how you can do that without taking unacceptable risk (at least unacceptable to me). I have already gone longer on bond investments to increase yields than I am comfortable with, especially when an environment of rising interest rates in the US seems inevitable. But I am still not earning 5% after tax. And I really don't care very much about having my investment assets keep up with inflation. If I have $4+ million in assets and they reduce by 2% per year for 20 years, they will have about half of their real value that they have now, so about $2 million, which divided 3 ways isn't a bad start, especially if they (my kids) have gotten a good education in the meantime. And for a then middle aged Thai woman with a house fully paid for and $ 0.75 million in the bank in today's Dollars should provide a reasonable lifestyle and comfort -- assuming that the US Dollar is still worth something by then. And currency diversification now and going forward is an issue that concerns me considerably. I see the Dollar value generally rising over the next year or two, but long term (10+ years), I think it is a different story. So, long term I would like to diversify away from US Dollars (at least 50%), but the question, of course, is into what? |
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Post by Fletchsmile on Apr 30, 2015 14:29:13 GMT 7
Yes tax would be a big part of the equation if I didn't live in Thailand. Thailand is actually quite favourable on tax though if you're a UK citizen. To achieve 7% I obviously take some risk on capital, which is includes a large part through equity investments. But tax isn't much of an issue if done right for a Brit, compared to an American - Thailand has no capital gains tax on most listed investments/mutual funds/unit trusts. So Thai equity based investments form part of my portfolio. With the right investments before and after tax returns are the same - Actually if you invest in LTFs and RMFs you can get tax benefits. For a 35% tax payer each 100 baht effectively costs 65 baht on these so you get an extra 54% return tax free providing you hold for the specified period. LTFs last only 5%, so they're effectively giving you 10%-ish per year if the value of your investments remains the same for 5 years - Singapore is a safe and tax efficient place to hold investments. No capital gains tax again. Investments like Singapore REITs are highly tax efficient so before and after tax is more or less the same - UK - the stuff I have left there is mainly in tax free vehicles like ISAs or pensions - Thailand doesn't generally tax you on overseas investments if you don't bring the money in same calendar year. So as a country it's highly efficient for expats and before and after tax returns are siimilar. The big thing for me on tax is while I'm in Thailand I'm fine - little or no tax on investments, and even some tax enhancements so 7% after tax isn't a big hurdle rate from equity based investments accepting some risk. The problem is if I go back to the UK. If I become UK tax resident again tax becomes very important as they will tax my worldwide income (unlike Thailand). I then start paying capital gains tax, income tax etc. So to achieve that same 7% I need more like 9%+ before tax on the same investment pot, or maybe a pot that's 30% more or so bigger... Tax on investments is probably one of the biggest factors that would stop me moving back to the UK. For me it comes down to: Thailand is better for tax and returns but school fees are high, UK tax on investments is much worse but free schooling. I also don't like the idea of having to earn more on investments because of UK tax, and then have the UK government p**s away my money to support all the hangers on there Cheers Fletch |
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Post by Fletchsmile on Apr 30, 2015 14:50:23 GMT 7
As well as the tax you mentioned, thailaw, you also raise some interesting points on risk. Peoples perceptions and risk tolerances differ. for me I'm comfortable with equity risk, as I've been taking it for 30 years plus. I've a bit lower tolerance now I'm married with kids than when young free and single, but still a fan of equities. That's where the cash reserves come in. I can accept the capital is not guaranteed, and if there's a crash like 2008,1997,1987 etc use the cash reserves until it picks up again. Long term equities on average outperform cash and bonds, so as long as you can ride out the volatility you're OK. Another perception of risk which has become very relevant in the last few years is the very big risk it doesn't keep pace with inflation or returns in real terms are negative. i.e the risk that your investments don't meet your desired rate of return is not to be underestimated. Similarly for many bonds, they are currently yielding negative real returns after inflation. There's also the risk that prices will fall and capital decreases as rates start to rise, so bonds are not necessarily always the answer. Holding individual bonds to maturity addresses that to an extent, but then you take default risk or credit risk. Given the high values often needed to invest you also end up with concentration risk. In today's world there' paradoxically the risk that if you play it too safe, and don't take enough risk, that's a risk in itself. A big risk that while your capital may be safer, you risk not hitting the returns you need. Yesterday's rate cuts increase that risk for many people. i.e can they afford not to take risk. More and more governments are forcing people to do that with low interest rates, QE and so on. So putting several asset classes together to diversify is another of my approaches. Again weighted to equities. for me it comes down to taking and managing risk, rather than avoiding it. As you point out, the less risk you take the bigger pot you need, so I see managing and taking measured risks as the middle ground answer, so I don't need to have as big a pot. Cheers Fletch |
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