Many of my clients have recently approached me to determine if they have enough capital to retire with. I think the reason for this is the fantastic growth we have witnessed from investments and properties over the past decade, which has brought retirement goals within reach. Unfortunately the low interest rate environment, which was the catalyst for growth, results in very low income levels. As capital values have grown, income yields have fallen resulting in investors needing more capital to produce the same income.
The two key factors in determining whether you have enough retirement capital are firstly, “how much income do I need” and secondly “how long will I need the income”. I suggest you draw up a budget to calculate how much you will need in retirement. Make adjustments for changes in lifestyle e.g. your fuel bill may come down while you medical expenses may go up. You can use the assurance mortality tables to try plan how long you are likely to live, but with the miracles of modern medicine you’ll probably be wrong!
I recommend you approach a certified financial planner to determine your precise requirements, but as a rule of thumb divide your annual after tax income requirements by 4 % to calculate how much capital you need. Don’t panic if the number is scary, remember by reducing your income requirements you reduce your capital requirement.
To end on philosophical note; we spend much of our time calculating and worrying if we have enough to retire on without ever thinking if we have enough time to enjoy our retirement. Plan for tomorrow, but don’t live for tomorrow, make every second count now!
Mcomm, CFP®, HdipTax
T. 021-851 3746