What income should you consider for you to live on income – 01/02/2024 – From Grão to Grão

In the comments on my articles and in those I receive by email, I see that many are confused about what income should be considered to live off income from financial investments. I explain below what is appropriate to consider for the long term, that is, for more than 10 years.

I notice many comment that with a fixed income it is possible to live on an income of 1% per month or more.

This is not true. Do not be deceived.

Just because the Selic rate was 13% last year does not mean that you can estimate that it is reasonable to live with an income of more than 1% per month in the long term.

This calculation does not take into account three important factors:
1 – Selic will fall next year to 9% per year, falling below 8% per year in the coming years. Therefore, last year’s 13% was a non-recurring case and should not be considered for the future;
2 – The Selic rate is a nominal rate. You cannot consider inflation in your income account. The income from inflation in its applications ensures that the amount withdrawn does not lose purchasing power;
3 – It is necessary to consider the IR. The income that goes into your pocket is the net income tax.

When we consider these three factors, the net monthly income from IR that an investor who invests in securities referenced to the Selic or CDI should consider from the end of this year is close to 0.19%.

When we consider federal public bonds referenced to the IPCA, this net monthly yield rises to an average of 0.30%.

Active	Expected monthly income net of income tax and above inflation in the long term
Properties	0.19%
DI Funds and Selic Treasury	0.19%
IPCA Treasury	0.30%
CBD IPCA	0.34%
Dividend Stock Portfolio	0.42%
Private Credit Portfolio exempt from IR	0.46%
Real Estate Fund Portfolio	0.50%

To obtain a higher monthly return net of income tax, it is necessary to switch to alternatives that carry some risk, even if very low, such as an IPCA CDB that is guaranteed by the FGC.

The table above offers an estimate of the net monthly rate of return of IR to consider as a monthly withdrawal from your assets.

I emphasize that these are not the current rates, but an estimate of the average that could be achieved over a period of more than 10 years. Current rates are a little higher, but could be much lower in the long term.

Therefore, it is recommended to be conservative in this estimate if the horizon is long term. An alternative to not having such a low rate is to lock in the higher rate with bonds with a very long maturity date.

One of the worst assets in terms of net monthly income tax return and risk is real estate. Wowhere comes criticism.

Before you criticize me, I’m not the one making up this number. I am only considering the statistics from the FipeZap Portal, excluding natural expenses such as vacancy, rental costs, small renovations and the highest IR of this application.

I remind you that you should not select just one class to consider when calculating your monthly income and apply your entire reserve to it.

It is important to have a balance to control risk.

It is also important to remember that periodic income is only part of the total income when talking about risky assets such as shares, real estate funds and real estate. This means that if you receive a dividend and the asset never appreciates, or rises less than the IPCA, it was a bad deal.

Therefore, when considering long-term income, that is, over 10 years, be conservative in your assumption so as not to be surprised with a lower-than-expected income at the moment when you no longer have time to rebuild your assets.

You may not even agree with my estimates. However, it cannot be denied that rates in the future will be lower and whoever does not take advantage now to lock in these better rates will probably end up with an average that is even worse than the one estimated above.

Michael Viriato is an investment advisor and founding partner of Investor’s House.

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