Here is a dilemma financial and retirement advisers face regularly. The people seeking advice have a $700,000 house and $150,000 in investments. They want $15,000 to $20,000 annual investment income to top up their national super and have a good retirement.
But $150,000 at 3.5 per cent a year after tax in the bank can only produce about $5000. Invested in a diversified balanced portfolio the return might rise to 6 per cent after tax; $150,000 at 6 per cent a year is $9000 - still not enough.
The problem is they have a lot of money tied up in a non-productive asset and a much smaller amount of money in income-producing assets. They have the house but they can't access that cash until they sell it.
Adviser's dilemma
The investment portfolio has a lot of work to do and it just isn't enough, so the investments erode rather too quickly.