249) Why Financial Planning Approach for Retirement?
Many people will want to plan well for their retirement. However, not many plan well.
When they were asked how much is needed at retirement age, most people do not know the amount required.
Some will just say $1 Million will be enough. Some will say $2 Million will be enough.
It is mostly based on gut feel or just guess a number to give the impression that they know about it.
If they were asked how they get the number, most will just smile or laugh to avoid giving the answer.
As a quiz, what is the required amount for this case below?
30 years old now.
Retire at 60 years old.
Spends $2,000 per month.
Prepare for 20 years living expenses.
Inflation is at 4%.
How much:
a) Retirement money needed at age 60?
b) To save or invest monthly to achieve that number?
Estimate your answers before reading further.
Do you have the answers?
From our simple calculation, you will need $1,556,840 at age 60 to sustain till age 80. With a 7% investment yearly return, you will need to invest $1,373 monthly.
Most people will be surprised that the Retirement Amount and Monthly investment number are higher than they expected.
If you do not calculate and plan, you may not be able to retire comfortably as you wanted. If your retirement fund is not sufficient, you cannot retire.
The younger persons will have a higher amount required than expected.
Why?
Because younger people have less experience in paying for all the things. If you are staying with your parents or renting, your payments are much less. Younger people do not know how much to pay for the family expenses, especially when kids expenses are included.
A higher inflation rate will definitely increase the expenses at much higher amount than you expected. Many people also expect their investments are going to give a higher return than actual.
A longer time to retire will also affect the retirement amount more. Any small change will be compounded to a longer period.
A more detail planning will be needed to check what is your actual monthly expenses?
Do you know how much is your current expenses? Most people will also estimate a number again. Have you actually list down the things you paid? Do it as a good exercise to know where actually has your money flowed out to.
Most expenses are only daily and monthly basis like food, petrol, car loan, phone, internet, water, electricity, car park, eating out, entertainment, clothing, etc.
Do take note that some expenses are based on yearly or irregular payments. For example, car insurance, road tax, life insurance, quit rents, festival expenses, car repair, etc.
The calculations are not only to be done once and use it until your retirement. You have to review your expenses situation and recalculate your retirement number again. It is best if you can do it on a yearly basis. You will be able to adjust and take some steps to handle the situation.
All the information you compiled now are just an estimate as your situation will change. You may have higher expenses, other unforeseen expenses, new income source, good investment opportunities, etc.
When your income increases, you will definitely increase your expenses too. You will have the urge to upgrade your car, house, lifestyle, etc.
This article is just a short introduction to plan for your retirement.
Please contact and discuss with your Financial Consultant on the financial options available for you.
Do you know your retirement amount required?
To calculate more accurately, click on the link below:
248) How to Calculate for Retirement Planning
http://highlevelrules.blogspot.com/2020/04/248-how-to-calculate-for-retirement.htmlHere is an Excel file where you can compare the Cash Flow (income and expenses) during working and during retirement. Link to Cash Flow excel file:
https://drive.google.com/open?id=1c9m6z1g_WxOmxHDhaM7wQLsjqSuuy21P
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