I don't know if I can replicate these figures for the second half of the year. I expect that passive income will be a lot lower as the takeovers will be lower and probably mutual fund distributions will be too. Dividends are likely to be higher. Anyway, these kinds of numbers give me some confidence about our move to Australia. Snork Maiden will be earning about $A65k (+15.4% retirement contribution on top of that) so our household income will be in the $US120k per year range if these numbers hold up.
4 comments:
Is it wise to count income from mutual fund investments as part of your household income? On a cashflow basis I'd only count SMs $65k plus any trading profits you make above a certain ROI target (eg. if you have $50K trading account and target 12% ROI as a minimum average return, then you could count any excess profits as your "wage" from trading, and count it as part of your households disposable income).
I'd just earmark all investment income as "to be reinvested" and ignore it from household income estimates. To count it as household income and then include it as part of your "savings" seems pointless.
I was thinking in terms of what our taxable income would be (if we make no long-term capital gains transactions). The number doesn't include any contributions to or earnings in retirement accounts.
You seem to be thinking in terms of actively earned income only. But a lot of bloggers seem interested in computing passive income too. So why not calculate it? And include it in the total? Ideally we wouldn't spend that at the moment and our net worth would increase faster generating more passive income later.
Should a "real" retiree say there household income is zero?
I just tend to reinvest all investment income, plus make some savings out of my salary income. None of the investment income tends to be taxable anyhow, as I use gearing to 'convert' income into long-term gains. Especially in Australia it makes no sense to pay, say, 42% marginal income tax on income when you can borrow enough to just offset the income with tax deductible interest payments and eventually pay tax at half your marginal tax rate on the capital gains.
Yes, a retiree living off investment income would count that as part of their household income, but I don't think most people count investment returns as "income" during the "accumulation phase" which you still seem to be in. Indeed most people who have any net savings in Australia have it tied up in their house and their superannuation account. The house generates no cashflow (and trying to calculate a deemed income per rent saved is way too hard), and most people don't see any income from their retirement investments within superannuation as it is automatically reinvested and becomes part of the increase in value of the unit prices in their account. I don't see why returns from investing outside of superannuation should be treated differently from investments in retirement accounts.
There's obviously no "right" answer - I just think that by counting the income from your investments as part of your disposable income you are at greater risk of ending up spending it on living expenses. The phrase "Ideally we wouldn't spend that..." illustrates my viewpoint. I think it may be a case of "out of sight, out of mind" ?
ps. I just found out why insurance is good value for money today ;)
Taxes need to be taken into account in all decisions but it only makes sense to borrow to the extent that it increases returns and one is comfortable with the risk. The Australian tax system does favor more borrowing than the US one does. On the whole though it makes more sense to use products like geared funds and installment warrants (or futures) as the implicit interest rate is much lower than most people can borrow on margin at.
Maybe we have a basic difference in philosophy as I don't think in terms of an accumulation phase and a retirement phase. Right now a lot of people might consider me retired as I don't have a job and don't intend to get one any time soon. But I will be working pretty hard to generate income. I'm hoping that even when I am 70 or 80 years old my net worth will be increasing unless it is because I am giving the money away. My mother is 75 and her net worth is increasing (though she spends too little in my opinion). She doesn't own any "retirement accounts" - she does receive some pensions. The point of having so much money outside retirement accounts is so it is accessible rather than locked up for "retirement".
My monthly reports break out four different categories of income:
Current - investment (including trading) and other (salaries, tax payments etc.)
Retirement - investment returns and contributions.
Bottom line there is no-one way to do this.
Post a Comment