How many assets do I need?

Let’s say you want to live on $100k (pre-tax) income per year. How many assets will you need to create this income?

A good assumption is that you can earn a 4% net yield on your assets, once the Golden Goose strategy is fully implemented and you’ve invest in high-yield properties.

That means if you have $1 million of net assets, you can earn a $40,000 pre-tax passive income. $1 million x 4% = $40,000.

So if you want to earn $100k a year in passive income, you need $2.5 million in net assets.

Since $2.5 million x 4% = $100,000.

Net assets is the value of your portfolio, minus your debt. For instance, if you have $5 million of assets and $2.5 million of mortgage debt, you have $2.5 million in net assets.

Use this calculator to help you estimate whether your current savings plan will be sufficient enough to fund your retirement lifestyle you want:

Golden Goose strategy pros and cons

Even though many investors aim for the Golden Goose strategy, there are still pros and cons

Pro #1 – Don’t have to guess when you’ll die

When you use the Golden Goose strategy, you don’t have to guess when you’ll cark it.

That’s because your passive income goes on forever. If you hold the properties the income continues.

So, there isn’t any guesswork required to figure out how many years your money will last.

This is great if you are planning to retire earlier than 65 or have a longer-than-normal retirement.

Pro #2 – Your passive income will continue to increase

Historically, inflation is around 2% per year. But rents increase by about 4.7% annually.

So, as you continue to hold your assets, your passive income will likely grow faster than your cost of living. This means your lifestyle continues to get better over time.

Pro #3 – You have an inheritance to leave your family

One reason investors like the Golden Goose strategy is it creates inter-generational wealth. You can pass your assets on to your children.

That’s because under the Golden Goose you’re not selling your assets and living off them. You’re just living off the income.

This preserves your assets and leaves an asset base you can pass on to your family as inheritance.

Con #1 – You have to pay tax

Even though you're not trading time for your money, you still pay tax on the passive income your assets generate.

This means, if you want to spend $75,000 (in your hand) per year, you’ll need to earn about $100,000 in passive income.

This is the trade-off between the Golden Goose and the Nest Egg strategies.

Because under the Nest Egg strategy, you don’t have to pay tax. You’re not earning an income; you’re spending the money you already have.

Con #2 – You need more assets

Because you need to make more money under the Golden Goose (so you can pay the tax man), you therefore need more assets to achieve your goal.

And the difference can be substantial. Here’s an example of the different level of assets you will need.

Let’s say you want to spend $75k a year in retirement. You’re planning to start your retirement at 65 and hoping you’re going to live till 82 (the average age of death in NZ).

How many assets would you need if you’re following the Golden Goose strategy vs the Nest Egg strategy?

When you compare the two strategies, depending on the numbers you use, you might require 30–50 per cent more assets if you take the Golden Goose approach as opposed to the Nest Egg approach.

However, this is all dependent on how long you expect to live. If you think you’ll live past 90, the number of assets needed starts to become comparable.

The critical part of the Golden Goose is finding properties that earn a 4% net yield.

That means that after paying your rates, insurance, and maintenance (but not your mortgage), you are left with a 4% return on your net assets.

Generally, houses and townhouses (growth properties) will not provide this sort of yield.

Instead, the properties capable of delivering this sort of yield are multi-income properties, such as room-by-room rentals or dual-key apartments (yield properties).

For example, a dual-key apartment is where two separate units are held under one legal title.

These properties don’t grow in value as quickly, but they do provide higher rental income.

You might ask, why not just keep my growth properties? This is a good question, since growth properties increase in value more quickly.

However, if you attempt to earn a passive income from growth properties, you’ll need significantly more assets.

The $2.5m worth of net assets you need to fund your $100,000 income is based on you getting a 4% net return.

Let’s say you keep your growth properties and get a 3% net yield.

Now you need $3.33 million in net assets for your portfolio to generate that same $100k of income.

That’s over $800k in assets you’d need to create the same income.

Who is the Golden Goose right for?

The Golden Goose is a great fit for people who plan to retire for a long time.

If you want to retire earlier than 65, or plan to live to 100, the Golden Goose is probably for you.

That’s not just because your passive income goes on forever, but if you want to retire early you won’t have access to KiwiSaver of Govt superannuation.

It’s also well-suited to people who want to pass on their assets to the next generation, or for people in relationships with age gaps.

That’s because one partner will likely pass on before the other. And if you’re reliant on NZ superannuation that income will drop once only one partner is left.

Who is the Golden Goose wrong for?

However, because you need more assets to make the Golden Goose work, you need to have enough time to build your asset base.

So, if you have a shorter runway into retirement – 7-15 years – you might find that the Nest Egg strategy is a better fit.

Because you need more assets to use the Golden Goose, you often need to buy more properties. If your budget (or your bank) stops you from building a large enough portfolio, you might decide to go for the Nest Egg strategy as well.

Next steps: How do I get my Golden Goose strategy underway?

If at the end of this article you feel Golden Goose is the right strategy and the right fit for your situation, your next step is to book a Portfolio Planning Session with a property partner from our team at Opes.