Life Expectancy, Baht And Inflation Rate For Retirement Planning

[vrsushi]

I am trying to sort out my future non-working life. Living costs are not too dificult to arrive at now, but of course the trouble is how to judge the baht rate to the pound in my case. And also the rate of inflation.

Iv'e been assuming that the rate of inflation and exchange rate, in combination, will stay relatively stable in todays terms. Simply put, that 1 beer in a British pub will always buy you more or less 2 large bottles in a Thai bar.

So this being the case, if my assets are inflation linked to the Uk then I will be ok.

The trouble is that this is being challenged at the moment. I started working this out when it was 72 baht to the pound, adjusted my finances to 67, readjusted again to 65 and now wondering if I should use 60......or heaven forbid even lower. I also fear that inflation in Thailand may run hiher than the UK and not be made up for in terms of exchange rate. I.e, that Thailand has and will get more expensive in pound terms.

Of course the danger lies both ways. Waste my good years working to increase my pot when I needn't. (I am a firm believer that life is for today if you can. Your 40's are far better than your 60s for example) I would consider it a failure to die with a large chunk of money left unspent. But then again running dry in my 70s would be pretty miserable too.

So just curious, what do other posters use as their life expectancy, baht and exchange rates?

Me now, 84 (after this its back to blighty I presume) 63bht to the pound, Uk inflation

Edited February 11, 2008 by vrsushi

[Jingthing]

There are quite a few good life expectancy calculators on the web, too lazy to google for them, but they are out there. You answer health history and behavior surveys and they punch out the grim number. The last time I checked, I should have been dead a few years ago, so I guess they aren't 100 percent reliable.

[bendix]

For me, personally, I'm not using any life expectancy. I'm basing my projections on never dipping into any equity and being able to live for as long as I need to on interest alone; in fact, I want to (and plan to) be able to keep increasing the pot through drawing down less than I actually accrue.

I know all the arguments about there being no pockets in coffins, but frankly the idea of running out of cash in my 70s or 80s apalls me and I'm not particularly keen on playing the odds that way.

[lannarebirth]

Here are the exchange rates from 1990. Maybe find a yearly average for each year, then average the years and use that as your target exchange rate. That will not take into consideration macro changes that seem to be favoring Asian currencies into the forseeable future.

http://www.gocurrency.com/v2/historic-exch...amp;frYear=1990

[endure]

Posts have been deleted. The OP asked a question. Let's stay on topic.

[chiang mai]

The UK Actuarial tables suggest a male in average to good health will live to age 84 years so for planning purposes you are spot on - simply adjust that figure on a plus or minus basis based on what you understand your health to be in relative terms.

Exchange rates are more tricky as various posters have pointed out recently in separate threads. There is an argument that favors a worst case scenario and although the idea of using 37 baht to the Pound may appall you now the concept has merit. Certainly there is no valid case to suggest that an average rate of 65 or above will be durable for the next twenty five years. For my part I use a worst case scenario of 40 baht per pound and reckon that anything above that will buy me a few more items of luxury on a whim.

Similarly, inflation should be calculated on a worst case basis and I use 8% as my guide.

The other parts of the equation that you haven't mentioned explicitly involve a realistic look at what you really enjoy doing and whether retirement is something you will truly enjoy or is is it merely that future nirvana that all people in working life look forward to - be careful what you wish for on this front because the grass is always greener ....

Finally, I agree with Bendix and yourself when you talk about being bald broke in tears and helpless - it's okay when you are born but no good when you are seventy. Probably better to over budget and plan on leaving your remaining assets to the Dogs Home rather than planning to live in it yourself one day.

And finally finally: if it's of any use to you I have a very unsophisticated spread sheet that will let you play around with all the items mentioned here to see how long your assets will last given different scenario's of exchange rate, inflation and asset base - PM me if you would like a copy.

[malcolminthemiddle]

You could move some of your pot into a fixed interest product denominated in Thai Baht (LMS Australia currently 6%), that would take care of any fluctuations in the currency. That is what I plan to do.

[lilBob]

For me, personally, I'm not using any life expectancy. I'm basing my projections on never dipping into any equity and being able to live for as long as I need to on interest alone; in fact, I want to (and plan to) be able to keep increasing the pot through drawing down less than I actually accrue.

I know all the arguments about there being no pockets in coffins, but frankly the idea of running out of cash in my 70s or 80s apalls me and I'm not particularly keen on playing the odds that way.

Sounds like a good plan mine is very similar, I intend to live off the interest of my pensionfund and continue to add to the equity. I also don't intend to run out of money and will have to maintain a budget.

I estimate 80,000 Bht per Month will give me a comfortable life although not extravigant with allowances for income increases. Thailand is not the place for Falangs wothout money.

Also health insurance should be included in all plans Thailand is also not a place for Falangs who are Ill.

Regards to all

[bendix]

For me, personally, I'm not using any life expectancy. I'm basing my projections on never dipping into any equity and being able to live for as long as I need to on interest alone; in fact, I want to (and plan to) be able to keep increasing the pot through drawing down less than I actually accrue.

I know all the arguments about there being no pockets in coffins, but frankly the idea of running out of cash in my 70s or 80s apalls me and I'm not particularly keen on playing the odds that way.

Sounds like a good plan mine is very similar, I intend to live off the interest of my pensionfund and continue to add to the equity. I also don't intend to run out of money and will have to maintain a budget.

I estimate 80,000 Bht per Month will give me a comfortable life although not extravigant with allowances for income increases. Thailand is not the place for Falangs wothout money.

Also health insurance should be included in all plans Thailand is also not a place for Falangs who are Ill.

Regards to all

Seriously guys - I'm financially conservative and I'm amazed people are estimating that they die at a certain age so that they can make sure they run out of cash as close as possible to that date.

What happens if you get it wrong? I mean, what happens if you pick 84 and plan your finances to run out around then but you actually make it to 90? Would you think of that as good or bad news?

[vrsushi]

Interesting replies. And they highlight a real problem.

Lets take Bendex's "never deplete capital" so nullify life expectancy approach.

Take Chiangmai's 40 bht to the pound and and 8% inflation btw CM what rate of return do you use for your investmens then?

If we take those figures then 99.99% of people could never afford to retire early.

Even people retired already living in the UK with a gov pension (377 a month) and say 200k GBP in the bank (and at that age I would be weary of playing with retirement funds into any stock) could only look forward to 700GBP a month for 20 years(inflation linked). So 1077GBP at 40bht to the pound would give a measly 43k bhat a month income which would go down to gov pension at 86

That leaves most working till 66. Which I feel is making a big mistake.

Also CM you mention worse case scenario of 40 to the pound. But I have good news for you. That is worse than a worse case. Here is why.

Yes, when I came to Thailand in 1995? it was 36 to the pound..........but a pound bought more in the UK back then. Let me explain.

In 1995 I remember earning 3 pound an hour in some crappy job (I think....memory isnt my best point) but a Gbp bought 2 loafs of bread in the UK. In thailand it bought 36bht but that 36bht bought I am 2 meals.

Now in 2007, those 2 loafs of English bread will still buy you 2 street meals. So the "real" rate of exchange" hasnt actually changed.

The upshot is that it will "never" retun to those levels again cuz the rate has adjusted for inflation.

I bet a loaf of bread in the UK has always more or less equaled a Thai street meal. So therefore I claim that it is reasonable to suggest it always will.

I hope you see what I mean, as it means that you can sleep far easier than you might have thought.

Mind you, that is not to say that there wont be something in the world that fundamentally changes the strenght of the baht to make Thailand more expensive. For example.... land in tourist areas as this has definitly become more expensive compared to the UK for structural reasons.

I hope that this thread can help us come to some findings that can help the vast majority of would be retirees who have a modest pension to look foward to and/or a couple hundred k in the bank.

Edited February 11, 2008 by vrsushi

[vrsushi]

But Bendex, many people with your attitude (which is a fair one if you are rich) could never ever get that $mill to retire with. And do you want to di with a mill$ in the bank?

[Naam]

You could move some of your pot into a fixed interest product denominated in Thai Baht (LMS Australia currently 6%), that would take care of any fluctuations in the currency. That is what I plan to do.

LMS Australia currently 6% = ???

[chiang mai]

btw CM what rate of return do you use for your investmens then?

Also CM you mention worse case scenario of 40 to the pound.

I use a paltry 6% as my annual rate of return because I am highly risk averse and I like to sleep at night.

Yes, I also remember 37 baht to the Pound - 35, 37, 40, 43 or 45, it's really an order of magnitude rather than a definitive guide. I also remember gold at $9.95 per ounce thus your loaf of bread theory does not hold too much wheat, um water.

And to the poster who asked about the logic of leaving $1 mill when you die: I will not try to steal Bendix's thunder because he can most ably respond himself but I would guess he might say something akin to: to err on the side of caution is better than to slide into oblivion penniless and in despair - older age must bring some form of security, peace of mind and comfort and for those who have earned enough in their working life, leaving $1 mill is a small price to pay.

Edited February 11, 2008 by chiang mai

[chiang mai]

You could move some of your pot into a fixed interest product denominated in Thai Baht (LMS Australia currently 6%), that would take care of any fluctuations in the currency. That is what I plan to do.

LMS Australia currently 6% = ???

I might also be persuaded but no fair sending cash only to PO Boxes.

[bendix]

But Bendex, many people with your attitude (which is a fair one if you are rich) could never ever get that $mill to retire with. And do you want to di with a mill$ in the bank?

To your first point, I don't have the answer to that. People have to work with whatever they have.

To the second, yes, I'd love to die with a million in the bank, but given the choice could I make it two million? Just to be safe? As someone else said, far better that option than to be faced with a situation where i would be sitting - year after year - watching my capital deplete and hoping that I die before it hits zero. I can't think of anything worse - it would be like having a self-imposed death sentence hanging over me.

And for those who say, you can't take it with you. No, of course not. Nor would I want to. Much better to be able to hand it on to someone else who might make use of it - family, kids, friends, the erection of a statue in my memory for Thaivisa etc etc.

[Jingthing]

FYI:

Bendix's extreme view is not the view of mainstream financial planners. There is no practical need to die with massive wealth unless leaving money to heirs is your top priority. It just goes to show you money is about way more than numbers. It is largely about our psychological relation to it. I speak as one from the other extreme. My goal is to live in plenty and have the proverbial check for my final expenses bounce. In reality, such success is about as tricky as always reaching simultaneous orgasms, so may I suggest a healthy middle path is the more normal and rational strategy?

Notice what some of the world's richest people are doing now (Bill Gates, Warren Buffet), giving it away, while they are alive. I can't think of a better way to enjoy your money.

Edited February 11, 2008 by Jingthing

[vrsushi]

Chiangmai

6% return 8% inflation therefore it is impossible to keep your capital. No life expectancy = you need several million $ just to be able to sleep at night.

Good if you got it.

But I am like 99.99999999999999% of the planet.

And if you have that kind of money, then why would you choose to live in Thailand rather than New York, Paris, London or any of the other great culture capitals of the world?

Same question to you Bendex?

I suggest that the good life on a retirement income is far more achievable than you guys are maing it out to be.

[bendix]

I dont want to get into the area of my own situation, but I think your sums are wrong vrsushi.

You don't need millions to do that. Even taking another posters example of saying 80,000 per month is enough in today's money, a capital sum of US$500,000 gets you to that, if you can get a conservative 6% and based on exchange rate of 32 baht to the dollar. Spend 72k, leave 8k in to top it up for inflation . . and bobs your uncle. Ok, the reinvestment wouldnt cover 8% inflation, but you get the idea. I personally aim to draw down only 70% of any interest I make.

Caveat: I'm not suggesting 80k is the right sum, nor that 500,000 is enough to retire on. Each to their own.

As for why Thailand rather NY or Paris or London. Well, cos I'm working here and i love it here. I'll likely have to go and work overseas again at some point in the next few years, but this is where I'll retire - through choice, not necessity.

But i think the discussion is moving away from the OP's original question.

Edited February 11, 2008 by bendix

[britmaveric]

Future is unpredictable - best bet is to make as much dosh as you can before you retire and hope for the best.

[chiang mai]

Chiangmai

6% return 8% inflation therefore it is impossible to keep your capital. No life expectancy = you need several million $ just to be able to sleep at night.

Good if you got it.

But I am like 99.99999999999999% of the planet.

And if you have that kind of money, then why would you choose to live in Thailand rather than New York, Paris, London or any of the other great culture capitals of the world?

Same question to you Bendex?

I suggest that the good life on a retirement income is far more achievable than you guys are maing it out to be.

I'll get back to you on that!

Edited February 11, 2008 by chiang mai

[meom]

What happens if you get it wrong? I mean, what happens if you pick 84 and plan your finances to run out around then but you actually make it to 90? Would you think of that as good or bad news?

Good point.

I think it's anyway difficult to plan your finances. Some people say as you get older you will spent a lot less because you've seen it all, done it all and it's not like when you're younger chasing women, sitting in the bar all day etc. etc.

[chiang mai]

Normal service has now been resumed.

For me at least it's all about trying to do the same thing that you are planning currently. Retire with adequate capital, project a life expectancy, calculate all the factors involved and go with it, even if that means running down your capital. The trick is not to run it down beyond an acceptable level if your planning is not 100% accurate, and it never is. The other trick I suspect is to stay on top of your plan and revisit it, model it and be prepared to change it when needed.

Yes, London Paris and New York have many good things to offer but it's not necessary to live in those places to take advantage of them, apart from which, living in those places requires a totally different financial plan - mostly however, I don't want to live in those places, I prefer to live here. Despite all its quirks and quandaries Thailand has much to offer by way of a good quality of life for retirees.

[vrsushi]

I dont want to get into the area of my own situation, but I think your sums are wrong vrsushi.

You don't need millions to do that. Even taking another posters example of saying 80,000 per month is enough in today's money, a capital sum of US$500,000 gets you to that, if you can get a conservative 6% and based on exchange rate of 32 baht to the dollar. Spend 72k, leave 8k in to top it up for inflation . . and bobs your uncle. Ok, the reinvestment wouldnt cover 8% inflation, but you get the idea. I personally aim to draw down only 70% of any interest I make.

Caveat: I'm not suggesting 80k is the right sum, nor that 500,000 is enough to retire on. Each to their own.

As for why Thailand rather NY or Paris or London. Well, cos I'm working here and i love it here. I'll likely have to go and work overseas again at some point in the next few years, but this is where I'll retire - through choice, not necessity.

But i think the discussion is moving away from the OP's original question.

500k$ drawing 80k bht a month getting 6% but with inflation at a very modest 3% lasts only 25 years Bendex

4% inflation lowers this to 22 years (at a stable 32 to the $)

So you need far more than 500k$ using your figures.

A cool million US would last 55 years. But remember that is at inflation and exchange rates that neither you or CM would feel comfortable with.

Btw, I really hope that neither of you feel this is at all adversarial. It's only that I am using your ideas to explore the question further.

[GuestHouse]

I take the view that a retirement plan based on the cost of retirement in your home country is a good idea for two reasons.

1. If you are from the west, I'm assuming from what the OP says he's from the UK, then your costs are always going to be cheaper in Thailand - Unless a miracle occurs and Thailand turns comes up with a national plan that addresses the causes of its falling behind its regional economic competitors.

2. You can always go home if you have to. And while the OP focuses on wealth risks, there are other risks too, personal health, political and social change being examples of what might drive an expat home.

I also observe that many of these discussions address 'retirement funding for the expat' but ignore retirement funding for the more commonly than not, expat's younger wife, and perhaps children born to an aged expat.

[IMChris]

80,000 Baht a month ? The average Thai only makes 9 - 12 thousand baht a month and here in Non Bu Nok they make even less. I guess if your living high on the hog downtown BKK. hel_l I started a small resturant and internet cafe that my wife runs with a heavy hand, for less then 150,000 baht. We dont make a fortune about 20,000 baht a mo. But things are getting better each day. Start up a sm shop let your Thai wife run the place and be a happy camper.

I love how you Brits think....Lets say I can drink 6 beers a day for 20 years, and when Im 80 I will only be able to drink 4 beers a day so lets factor in X = years then subtract Y= beers then X for inflation rates for each year beer is bought will call this Z . Add this all up and what do we get....................... beerbelly.

[endure]

No-one has mentioned annuities. Don't you think they have any use in pension planning?

[dumspero]

Interesting discussion.

In the interest of full disclosure, I'm also planning on not depleting the capital, perhaps with a need for it for dependents as Guesthouse astutey noted.

But it is a reasonable option to plan to deplete one's capital, and one way to resond to capital being depleted faster than your plan 'A' is a combination of government pension (where applicable) plus purchasing an inflation-variable annuity before the capital is depleted too far. But sure, that will mean less coming in each month, even though it would mostly stop the erosion effect from that point forward.

Agreed that Bendix' response at $500,00 is not right. His model only reinvests 8,000 baht per month, or 96,000 per year, or $3,000 per year at his 32 baht to the dollar rate, to cover inflation erosion on $500,000--something like .67%--not enough for any reasonable esimate on inflation erosion as noted by the OP. More realistically not to deplete the capital you could use 3% and reinvest 3% (i.e. 50-50 on a 6% after-any-tax annual return), to have just $15,000 per year or $1,250 per month or 40,000 baht per month. Doable, but could still erode your capital depending on return, taxes and inflation, and for many at 40,000 baht per month, it would always be tempting to spend a little more here or there. And ahev't checked for best variable annuity rates on $500,00, but would guess it would not be any better.

Again, interesting topic since even if we all have different specific goals in mind, many of the same assumptions and concepts would seem to apply.

Cheers.

[PadThaiGuy]

There is an excellent book by Stephen Pollan titled "Die Broke".

He has some novel stradegies about retirement planning.

He advises spending your money, giving it early to your heirs, using Reverse Mortages, Annuities, Insurance to get you to the end.

The check to the undertaker bounces.

Edited February 11, 2008 by PadThaiGuy

[mickba]

All very interesting (scary?) stuff for a naive (stupid?) farang who has already made the commitment (bought/no, paid for, the land and building the house) and is now (up too late?) just a tad concerned about exchange rates.

Or maybe I can take the view (cling to the hope) that at least my rent is inflation proofed and paid for (no, don't say that - please).... - and maybe I should take it further, as per IMchris' post and bring in another wedge to fund the business to 'fix' a Thai income?

I'm just about to take a pension option at 60 which looks pretty healthy at 65-68 baht/GBP but at some of the rates being suggested here I'd have to adjust my outgoings somewhat.

[PadThaiGuy]

No-one has mentioned annuities. Don't you think they have any use in pension planning?

Annuities are usually not recommended for retirement planning.

Annuity sales people love them for the high commisions.

The withdrawls are taxed as income and not Capitol Gains. Ouch.

They are a somthing to consider if you have already maxed out your tax deferred 401k, IRA, etc..or need an income stream when you are old.