Retirement Savers: How Much Money Is Enough?

retirement-planning.jpgWhen people discuss retiring or having a sea change or chasing their passion, the different reactions usually involve money: “I’d love to do it but I don’t have enough money.”

You reach retirement age and don’t have enough to retire on, you’ll be left with two options, either to delay your retirement or reduce your standard of living in retirement. Which one would you choose?

It always helps to know what you are aiming at and wealth creation is no different. I will assume that you want to build wealth in order to be able to retire and still live well. How much money will you really need?

I was attending a wealth building conference and one of the other speakers, a financial planner, made a statement that when you retire you only need about 50% of you pre-retirement income. I was amazed at this statement and I asked him back stage how he came to that conclusion. He told me that all retired people do is sit around and watch television all day.

My response to him was that this was a description of what broke people do (namely his clients). Retired people who have successfully built a decent wealth portfolio are living the time of their life! What are you aiming at? The lifestyle of the television watching clients of our financial planning friend or the time of your life lifestyle that comes with wealth?

How much will you need for a good lifestyle in retirement?

The short answer is that, if you want to maintain the lifestyle that you are accustomed to then you will need a monthly income equal to your monthly income one month before you retired. Anything less and there is something that you will have to give up.

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When I say this I often hear the following argument. If you were investing money prior to retirement and you no longer need to do this after retirement then you don’t need as large an income as you did before retirement.

I don’t know why so many people are so determined to aim at reducing their income but I will answer the question anyway, Firstly it depends on what age you are retiring at. If you are young or at least plan to live a long time after retirement then you may well need to keep investing.

Secondly, even if it is true that you don’t need to invest any longer then let me ask you what you plan to do in retirement. You see the biggest difference that retirement makes in your life is that you suddenly have a lot more free time to fill. How do you plan to fill it and what will that cost you?

If you plan to do some traveling then you will need to fund it. I don’t know too many retired people who would prefer roughing it in low quality accommodation of last resort. The retired people I know prefer high quality accommodation of a five star resort.

Realistically determining your financial needs in retirement is the first step to actually achieving the income that will provide for those needs. The only thing worse than aiming too high and missing it is aiming too low and getting it.

I would like to suggest that you put pen to paper and answer a few simple questions.

1. What age do you want to retire at?
2. How many years do you expect (considering today’s life expectancy) to live after retiring?
3. What lifestyle would you like to live in retirement?
4. What will that lifestyle cost per month?
5. Am I doing enough now to provide for that?

Please don’t make the mistake of aiming too low; there are too many people at that end of the retirement economy now!

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2 Responses

  1. LOL, I wondered what experience and qualification that financial planner has to take on the platform. Retirement means a new lease of life have begun and we take on new roles and responsibilities. We are still learning, growing and LIVING. Retirement does not mean we became a couch potato and became more senile each day.

    Robin, I’d love to retire young so that I have all the free time to do what I want. To do that, I have to be financially rich – and not just financially free. Once, I was having a rough time with cash flow and I stopped all forms of savings and investment. There’s nothing I can do. That was a stupid thought. Saving and investment has a compounded effect no matter how small the initial effort is. By inaction, I’m slicing my financial throat.

    My new found strategy is to have residual and passive income, short and long term saving, investment and last but not least, simplify my lifestyle. This strategy will work even if I’m retired. How to get these 4 aligned and balanced will be my challenge for 2008.

    This post is by far my favourite of your 2008 entries. I believe you won’t waste time listening or attending that speaker’s future seminar. :)

  2. Robin Bal says:

    Hi Viv,

    Thanks for the great comment, you sound like a financial planner of repute. Although I mentioned that your retirement income should be equal to your last salary drawn, I did forget to mention the inflation part. Your retirement amount should be invested in a way to cope with the consumer price index. Inflation is a slow killer.

    I liked your strategy and wish you all the best, the key to achieving your goal is discipline.

    Thanks for your appreciation for this post. I am always open to new strategies and ideas but this planner I was listening to, was in a different world.

    Take care and cheers.

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