The 4 P’s - Retirement Plan –
How Much Money Do You
Need to Retire in Comfort?
So just how much money do you need to retire in comfort, do you think?
Retirement! – It hardly seems yesterday when I was thinking... "Retirement...that’s so far away it doesn’t bear worrying about". Now all of a sudden it seems to be looming...I can sense the cold grey shadow of austerity waiting 'open armed' just around the corner of the next decade!
It's CERTAIN there will NOT be enough money in-the-pot (in the UK for example) for MOST of us to pay for even a half-comfortable retirement! For all of us aging 'baby-boomers', this is due to the fact that there will be too few working and contributing to the 'kitty' by the time WE come to retire! So now the question "How much money DO you need to retire?" suddenly begins to resonante!
So – just how much money do YOU need to retire, and how do you calculate if it will be enough for 'comfort'? If you imagine setting money aside from the age of 30 for a target retirement age of 65...then what seems a 'decent' sum today, may be a relative 'pittance' by the time you retire.
An average house (in the UK) for instance – over the the last 25 years has risen from around GB£16,000 to GB£160,000! This pattern seems likely to continue. So, if you are 40 today, by the time you retire a typical average property could be GB£1.6 million!!!!
Other 'costs of living' have increased by even greater increments than property! So what might have seemed a 'sizeable pool' of money to provide a reasonable retirement could be little more than a 'puddle' when it comes to those costs of the future!
Here's a calculation you might like to try in order to guesstimate just how much money you will need to retire in comfort! It makes you think:How much money do you NEED to retire -
Doing YOUR sums!
How much money do you need to retire in the knowledge you are likely to be able to live comfortably for the duration of your retirement? (This will hopefully be a ‘decent’, length of time - let's say at least 15...maybe even 30 years!)
One ‘formula’ suggests that to be ‘financially free’ (defined as "being able to pay all your bills, and have enough left to enjoy life without being unnecessarily extravagant") when you retire: –
(1) First, decide what annual income you would need NOW to live a comfortable existence. Let’s say (easy figure) the sum would be US$100,000 – that’s around GB£52,900, or Euros78,600 – (this is a good deal higher than today’s (2006) average wage so should pay for a comfortable – but not extravagant – lifestyle)
(2) Now - for each 15 years that there are between your age now and retirement – you need to assume you will need 2x your annual income to make up for the impact of inflation/increasing costs-decreasing ‘value’ of the $/£/€.
if you are 50 now looking to retire at 65 –
then you’ll need 2 x 100,000 = US$200,000 per annum
if you are 30 now planning to retire at 60 –
then you’ll require 2 x 2 x 100,000 = US$400,000 per annum
...for the same ‘reasonably comfortable’ lifestyle you would like to (do!) have today!
(3) Now MULTIPLY this sum by 12 – this equates roughly with an expectation of earning 8 to 9% off your wisely invested ‘pot of funds’ – given the low interest rates of recent years, this may be ‘optimistic’...(for a more 'conservative' estimate - you'd have to use a higher ‘multiplier’ - e.g. Expecting only a 5% return? Then multiply by 20!):
For the 50 year old example: 12 x 200,000 = US$2,400,000
For the 30 year old example: 12 x 400,000 = US$4,800,000
This implies that for a 50 year old – looking to retire in reasonable comfort in 15 years time – s/he (they?) will require a total sum of US$2.4 million! This sum to be sufficiently well invested to return 8.5% per annum – which equates with generating US$200,000 to live off.
NOTE: If your ‘return’ on investment is lower than 8-9%, and/or you want to increase the ‘pot’ during your retirement - so your yearly income can keep pace with inflation (i.e. If you live another 15 years you’ll need around US$400,000, as we have previously calculated - to maintain your lifestyle!) – then you will EITHER need more in your retirement-fund – OR you’ll have to generate considerably higher returns, which is unlikley)How much money do you need to retire?
What are YOUR prospects?
Now you have the answer to the question "How much money do you need to retire in comfort?" – do you foresee your total ‘investment pot’ being substantially lower than it needs to be? – If you do, there are at least a couple of things to consider.
(a) You could plan to retire to a place where the cost-of-living is substantially lower than where you live now!
(b) You'll need to find a way of boosting your income during the intervening years between now and when you retire – in order to make up the predicted shortfall in savings!!
As far as (a) goes, then the Dominican Republic might well be a useful part of your retirement plan – in the respect that the general cost-of-living is certainly less than the developed Western countries.
If you are currently in the position of being able to look for a retirement/vacation property, one BIG advantage of checking-out the Dominican Republic real-estate market just now – is that it appears set to achieve substantial increments in property prices over the next decade.
The increments for wise real estate investors in recent times have been excellent. With the last few years of better political and economic management the confidence of foreign investors and developers has grown. This has led to property opportunities with superb potential to increase in value as the internal investment in improved infrastructure continues within the DR.
Take a look at our Dominican Republic real estate pages now, for further information.
BUT if you are more concerned about addressing – (b) – the shortfall in your retirement pot...and you're wondering how you could bridge the yawning chasm between what you will need...and what you are likely to have!!! Then we may also have a great suggestion for you...
All we ask is that you remain objective and look at this business opportunity information with an open mind...You should recognize (as we did) the tremendous potential in starting your own part-time business in this FAST-GROWING sector! The tremendous passive income potential this opportunity provides will potentially ‘supplement’ your pension requirements in perpetuity (and can even be passed on to your kids!)... Any questions, please do contact us...and we’ll pass on some further details about this genuine business opportunity.
Given the alternative, in a few years time, of wrapping yourself in a duvet and using only one bar of the electric fire to save on heating bills...then we’d say – you cannot afford NOT to look seriously at this superb ethical business!
Remember what Douglas McArthur said: "There is no security in this life, only opportunity." Grasping this opportunity could just make the answer to the question - "How much money do you need to retire?" a lot less worrying!
Al & Ruth
"How much money do you need to retire"
P.S. This article was published originally before the recent perturbations in the world economic situation. It may now be even more urgent that you find alternative streams of income to supplement what is coming in.
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