[Personal Finance Basics] - Is Your Retirement Money Enough?

[Personal Finance Basics] - Is your retirement money enough? Think about how to face the retirement funds you may need if you live to 90 or 100...... !

When we talk about whether retirement money is enough,

many investing friends are very interested. I will say a little more here, and I hope everyone faces retirement funding seriously and conservatively.

First, what we are discussing here is living expenses needed for retirement, excluding elder care. That part varies greatly from person to person.

In the past, I mentioned in class that as long as you have liquid capital equal to [annual expenses] X 25 and an investment return of 10%, you can retire at any time, and the money will never run out across generations (return of 10%, spending only 4%). This has nothing to do with age. It is the most direct and simple calculation, and it has always applied. Many people ask at this point: where can you get a 10% annual return today? We have always said that the U.S. SP500 index has long provided a 10% return, so investing the funds in the U.S. index can achieve the goal. Taiwan's index long-term return is also close to 8%.

For example, an investor in the United States who needs one hundred thousand U.S. dollars a year in expenses needs to prepare 2.5 million U.S. dollars in investment capital. For friends in Taiwan, if you need one million NT dollars a year, you need to prepare 25 million NT dollars in investment capital. Other annual expenses can be calculated proportionally, or by multiplying annual expenses by twenty-five to get the required capital.

You can also use online calculators to get more precise results. I tried MSN's calculator and it is not bad. Those who need it can calculate it themselves.

http://www.msn.com/en-us/money/tools/retirementplanner

Example [1]

Age sixty; required annual expenses are the same as current income, one hundred thousand U.S. dollars; current assets are 2.5 million U.S. dollars; inflation is 3%; retire now at age sixty; estimated lifespan to age one hundred (forty years); investment return 8%. Spend one hundred thousand per year, and at age one hundred there would still be more than nine million U.S. dollars left for descendants.

(Investing friends in Taiwan can change the funds to twenty million in retirement capital and one million in annual expenses. At age one hundred, there would still be more than seventy-eight million left for descendants.)

(If retired friends in the U.S. do not have two million U.S. dollars, or friends in Taiwan do not have twenty million NT dollars, then expenses must be reduced proportionally.)

Example [2]

For various reasons, if the return rate is only 6%, in the end the money is only enough to last until age ninety-one, and then it is all used up.

Example [3]

Because of wanting a little more enjoyment, annual spending rises to one hundred fifty thousand. As a result, the funds only last until age 83, and then the money is all used up.

So a person's investment finances and retirement spending require serious attention. A 1% - 2% difference in return rate affects whether one can live peacefully in old age. Another factor is not spending more than the retirement reserve can bear. As long as annual spending does not exceed 1/2 of investment returns, you can retire steadily. So retirement life is closely related to investable capital at retirement, investment return rate, and annual expenses.

Written on: July 18, 2016