I get asked this question almost every week. And I never know the answer. You would think an intelligent man like me would be able to work it out, but obviously not. It’s probably the reason my wife thinks I am not intelligent. Ask her, and she will tell you I am an imbecile.
Anyway, the question is, ‘What is the magic number I need to retire?’
The problem is that there are so many variables it is impossible to answer. But that does not stop the question from coming back to me again and again every time it leaves me stumped.
If you would like to know what your magic number is, then before you even think about approaching an imbecile like me, you need to ask yourself a few questions.
Where do you want to live?
Do you want to live in Australia or an Indian village?
My mother lives in an Indian village about 5 hours away from Mumbai. She could live better than his Royal Highness for about $2,000 a month or about $24,000 a year.
If, on the other hand, if she were to live in Australia, she would need about $40,000 to have a basic average living.
Now, I get that an Indian village may not exactly be your cup of tea, but you get the point. Where you decide to live during the twilight of your years will determine how much money you will need.
Will you be debt-free?
The number of people retiring while still having debts is rising. On average, approx. 20% of retirees will still have a home loan when they retire. When you think about it, that is quite a lot.
The reason?
Well, the banks worked out that giving 30-year loans was very profitable. That’s because you pay interest for 30 years. They tell you it has nothing to do with their profits. They say they only have your financial well-being at heart because they say monthly repayments are lower over 30 years than over 25 years, and that means when Jonny wants an ice cream on a hot day, you can afford to pay for it.
I have many clients who are in their mid-40s taking out 30-year loans. This means their loans will get paid off when they are in their mid-70s.
If you are in this group, then you will have to work out if the loan is going to be repaid from retirement funds on retirement or you will continue paying the loan after retiring.
The more debts in play at retirement, the bigger funds you are going to need to service them.
The age you retire. And the age you die!
Retire at age 50, you need a heck of more money than if you decide to retire at 65. But then again, if you retire at 50 and die aged 52, you don’t need as much as someone who retires aged 60 and dies aged 70.
These days, when you cannot control something, you have to blame someone. So today, I blame god, who has a plan no one understands, and he/ she is playing a wicked game of uncertainty with us. The problem is very few can predict how long we are going to live.
And that plays havoc when it comes to predicting retirement funds.
So, what to do? To be honest, I haven’t the foggiest. Just know that if you die young, you do not need as much, and any excess will be left for those you love (or hate). If you live to a ripe old age, you need a lot more, and everyone just wants you to die so they can get their hands on whatever is left.
Healthcare costs
We don’t often think about healthcare costs.
I never did. But now I have an illness, and that means my local pharmacist has become my best mate. I am not sure if that is because she genuinely likes me or it is because she has realised that as long as she keeps me alive, I will eventually end up paying her millions in order to keep my drug habit going.
And that’s just medication costs. If you require formal care, be prepared to sell your kids into slavery to pay the bills.
Lifestyle choices
If you happen to be one of those urbanites who cherish their avocado toast and coffee that most people cannot pronounce at your local sophisticated café, then the chances are you will want to continue with that habit when you retire. If, however, you are happy with toast made from Coles bread with a tea from a tea bag, I do not need to tell you your money will go further.
Which is right? They are both right. It is up to you to decide what kind of life you want.
But I will say this.
It is easy to move up when it comes to lifestyle. It is very hard to move down in lifestyle. I know many people who worked very hard and lived a simple life. They have since retired and are now spending their money freely and are happy.
And I know others who spent during their working lives and now do not have as much, so they live a simpler life but wish they did not have to.
But having said all that, I know people who worked hard and saved money for retirement but have changed circumstances, which means they cannot live the life they want.
And this is why trying to predict how much you need is so hard to do. That is why most people who try to do it can’t work it out.
But there are people out there who can. These are usually people in suits who sit with a calculator and play on their PCs, working with algorithms and statistics. They rarely get it right. But at least they give you a better idea than an imbecile like me. And that is why if you ask me the question, I will put you through to a person who at least has a chance of answering the question.
Estate & retirement planning is step 9 of our 9 steps to working less, earning more and having more wealth. If you would like to know more, email Hitesh at hitesh@wowadvisors.com.au or Ros at ros@wowadvisors.com.au or call 07 3161 9548.
