How much do you need to save to be able to live on your income?

Every saver or investment lover has ever wondered if it is possible to invest money in such a way that they get enough income to live on their income and not lose their capital.

The ups and downs of the Argentine economy; a capital market subject to constant rule changes and repeated monetary and inflationary shocks makes it difficult to choose simple investment instruments to generate enough income to support themselves. But that doesn’t mean they don’t exist.

The question, then, is how much money do you need to save to be able to make it work in a way that allows Live from the performance of the financial investment. And the first answer that emerges from the experts is that it is difficult to be precise if certain basic assumptions are not taken into account beforehand.

According to CABA’s Statistics and Census Branch, as of December, $235,188 was needed to reach an income considered middle class.

For example, how much do you want to live in a year or how much risk do you want to take.

Thus, if we take as a reference the value of the basket of expenses prepared by the General Directorate of Statistics and Censuses of the Autonomous City of Buenos Aires, in December a family needed 235,188 dollars per month to reach a threshold of income consistent with middle-class consumption. Translated into dollars depending on the spot with an average settlement, this would represent approximately 703 USD per month and 8,440 USD per year.

The amount may seem sufficient or exaggerated, depending on the reality of each individual or family group. But it can be a benchmark from which to make more accurate estimates for each. The greater the expected income, of course, the capital needed should be greater.

From this benchmark amount, you can then take two model investments that can generate this annual return and estimate how much you need to invest in each of them to achieve this result.

– U.S. Treasury Bonds: These are the assets considered to be the safest in the world and therefore those that generate the lowest return. Therefore, you will have to invest a lot of capital, although on the positive side, the possibility of the strategy failing is less. With an annual return of 3.69%, an accumulated capital of 228,713 USD is required to be able to obtain 8,440 USD per year.

– Negotiable bonds of Argentine companies: a much riskier alternative, but originating from the local market, is to opt for Argentine corporate bonds issued in dollars. These are investments that, due to their yields, are now considered safer than the country’s sovereign bonds. But they are by no means as safe as a 10-year US bond. The possibility that the strategy fails, in this case, is greater. With an estimated return of 8% per annum in dollars, an accumulated capital of USD 105,494 is required to obtain sufficient returns to live on its income.

But not rushing is not all that needs to be taken into account, experts warn.

Of course, not just anyone manages these investment amounts, nor should they be left in the dark. We must consider the tax structures of Argentina – and the United States – to calculate what is the final return, after taxes, which can be claimed.

– Benefits: Assuming the worst case scenario, the highest rate in the case of residents in Argentina, investments in US Treasury bonds pay 35% on yield, interest. Considering this, you must obtain a monthly income of $361,828 to have $235,188 per month. Translated into dollars, $1,082 per month or $12,984 per year becomes necessary to achieve the target income. Thus, the capital needed to live on the income of US Treasury bonds rises to 351,866 USD in total.

What is interesting is that in the case of the other investment model chosen, the marketable bonds of Argentine companies, income tax does not apply. They are exempt. The amount to be invested therefore remains at 105,494 USD in total.

– To personal property: With an intentional punishment for overseas investments, Argentina taxes investments in foreign securities such as US Treasury bonds up to 2.25%. So the return of 3.69% per year ends up being much lower after this tax. To achieve the target return, it skyrockets: $901,658 had to be invested in total.

In the case of Argentine corporate marketable bonds, personal assets apply differently. In the worst case, for the largest assets, the rate goes up to 1.75%, which significantly reduces the return on investment, but does not trigger that much of the final amount needed. Taking this tax into account, a total of 135,032 USD is required.

A third factor to consider is the capital gain that the US Treasury charges for investments in assets in this country, by 15% of the result, which directly makes the benefit of investing in the safest assets in the world almost nil. For Argentines, therefore, it seems that risk is the only option. Of course, this does not apply to local placements.

When trying to understand the risks an investor is exposed to, there is a lot to consider. Local market fluctuations, regulatory risk—changes in rules that prevent companies from paying their debts—local market fluctuations, and the fate of each particular company’s business, to name a few.

To reduce them, the financial adviser Giselle Colasurdo recommends opting for reputable companies that have issued dollar papers governed by New York law. So, understand, it becomes more difficult for local fluctuations to affect your payments (international ones, on the other hand, remain stable).

It is recommended to opt for reputable companies that have issued dollar papers governed by New York law (Colasurdo)

“Telecom, Irsa or Genneia are generally the most chosen. Its maturities range from 2025 to 2028, it is not necessary to have the security in the portfolio until maturity. It can be sold in advance for pesos or for dollars in case you need money, and take the coupons collected to date. Interest is paid in dollars semi-annually,” Colasurdo said.

Even with all of these considerations, the calculations only give a minimum baseline from which you can start relying on passive income. There are other factors to consider that also affect the outcome.

“In these calculations, inflation in the United States is not taken into account, so if we withdraw income each year to live, the capital will lose value in real terms over time. In other words, we would eat up the capital,” says Colasurdo.

Continue reading: