After acting on last month’s article, you now have written down your plan. Great.
Next question: How much money will you need?
All retirement plans begin with a number – how much money do you need in the bank. How much monthly income will you need to fund your retirement lifestyle without having to dip into your base savings.
This number differs depending on your lifestyle and circumstances. If your plan is to live quietly in the country and breed dogs or grow roses your retirement plan will need a lot less money than if your plan is to tour the world and catch all the latest fine art exhibitions in London, Paris and New York.
You’ll also need to take into account how many people you will be supporting, and how many years you’ll need to fund. If you intend to retire earlier rather than later you’ll need extra money to cover this time. Conversely, you may well be sufficiently active, healthy and keen about your work so that you want to continue at that occupation well past what most people would think of as retirement age.
Consider about your current costs – some of them may decrease (if you own your home outright, you won’t have a mortgage) and some will increase (health insurance, for example, or maybe you plan to travel a lot more).
So now it’s time to get back to that pen and paper and put some figures alongside your retirement plan. Be realistic, it is better to be a bit over than under. You can always find ways to spend that bit more, but you don’t want to sell yourself short and find that you can’t quite fund what you want later on. You need to come up with two figures – how much capital will you need to set yourself up and how much ongoing income will be then be needed to live the life.
If you qualify for NZ Super you will get:
- $19,700 per year if you are single
- $32,900 per year for a couple
…..and that is before Tax.
Is this going to be enough? Probably Not!!
An example: I have made my plan.
I will need one million dollars in capital plus $60k income per year (inflation adjusted) to live my dream.
So we have a gap. How do we overcome that?
There are a number of options available for generating wealth and then deriving a steady income from that wealth.
If you still have some years to go before you settle into retirement, then working to close that gap will be more achievable than if retirement is looming. You may need to readjust your dream life to suit the circumstances. If it is the dogs and roses that are beckoning, then consider doing that on a semi-commercial basis rather than just as a hobby. Your art travel could involve not just appreciation but reviewing such events in the media or perhaps dealing in the art itself. It is time to brain-storm and be creative. There is the concept that you get into your 60s and the word ‘retirement’ comes into play, but more and more people don’t think of retirement as just kicking back any more.
They just think of a transition into some other type of productivity,
Should you have more time to achieve the resources required to fund your plan, then obviously you will have more options. Increasing your income over the next few years will certainly help, and this does not necessarily mean changing employment. There are a number of ways that you (and your partner) can derive more income over the intervening years, such as secondary employment, a part-time business, or utilising the gig economy with the help of Uber and AirBnB.
The important point with these efforts is that you now know your goal and what you need to do to achieve it. This extra income should not be spent on today or tomorrow, frittered away on the latest gadgets, or spent on nebulous things that create only short-term satisfaction. As you see the savings mount up it does become easier, and consciously visualizing your goal will keep you keen and focused.
Peter is an established long-term Auckland residential landlord. He is also active in providing tenancy advice to the North Shore Citizens Advice Bureau and works within various property investment associations. He is not a certified financial planner or an accountant.