Will you enjoy a retirement lifestyle that is constrained, moderate, comfortable, or abundant?

On a recent bushwalk, I had a conversation with a fellow walker in his mid-40s. Our discussion developed into how much money he needed to save for his retirement. He was concerned he would not be able to have a reasonable lifestyle when he eventually retired, or might have to work well past his hoped-for retirement date.

When it comes to money, life is like a game of musical chairs. One day, the music ends, and we need a financial chair to sit on.

The problem for most of us is calculating how much money we will need when we give up work, sell our business, and/or retire. Many calculators are available on government, financial planning and fund-manager websites to assist with this. Some go into great detail, while others use simple heuristics, such as a percentage of your average salary for the last three years of employment, to calculate what you will need.

All the information on these websites is useful – to a point. The percentage of your last salary suggested for retirement can be anywhere from 65% to 80%. None of these websites makes it clear whether this percentage is pre-tax or post-tax. In addition, they don’t take into account your specific needs, particularly regarding accommodation. For example, if you don’t own your own home, you are probably going to need more money in retirement.

General advice on retirement income broadly suggests that for a modest lifestyle, an individual will need about $28,000 and a couple about $40,000 per year. For a comfortable lifestyle, it’s often suggested that an individual will need $44,000 and a couple $62,000 per year.

My walking companion had used a website calculator to work out his retirement income, but had not realised three things:

  1. He had based his calculation on his pre-tax salary.
  2. His home mortgage will be paid off by the time he retires.
  3. He had been consistently saving money from his current salary, so his living expenses were lower than what he thought.

After our conversation, my friend concluded that he would require $500,000 less than the figure he had come up with via the website calculator.

When working out your retirement income, get advice from a money coach or financial planner. Spending a little money now will avoid a lot of worry in the future. It is often the case that you are, in fact, on the right track, but you just don’t know it.

If you need help working out what you will need for the kind of retirement you desire, email me at bryan@bryanworn.com.


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