How much do I need in order to retire? Does this question strike a chord with you?
The golden question I’m often asked is; How much do we need in order to retire?
And my response to that would be; How much do YOU want as a monthly income for your retirement lifestyle?
In my consultations with my clients, I first want to know their desires and passions in life. What do they do that makes them happy and gives their life more meaning? And then we plan their finances in order to reach those objectives.
Let us categorise 2 groups of retirement lifestyles: The median group that wants a comfortable lifestyle, and the second group are those who want to sustain a luxurious retirement.
In the event you are unsure about how much you desire as a monthly retirement income, you may take 70% of your last drawn income as a reference.
To put things into perspective, let us assume you are a 40-year-old working professional, and your aim is to be financially ready for retirement by the age of 62.
Based on an inflation rate of 3%, to have a monthly retirement income of $5000 and maintain the same spending power by 62, that would mean $9500 in future dollars.
In other words, that same bowl of noodles you had for lunch for $5, would effectively cost you $9.50 22 years from now due to inflation.
Have you ever wondered how ready you are for that? Is your money growing efficiently enough in order to afford the lifestyle you want?
People tend to be obsessed with investment returns, but how much they save is actually more important.
Simply put, saving 8% of your income with a 1% rate of return beats saving 1% on an 8% return.
The good news is that how much you save is within your control whereas earning a higher investment return is not a function of effort.
Always remember that money is not a goal, but an enabler.