How much do you need to invest to earn an after tax income of $65,000?
Using the following assumptions:
- Age 65
- Balanced investor profile
- Investment returns are inflation adjusted and net of tax
- Funds required to age 93 = 28 years. If funds run out at that time, sell the house and move into a rest home or take a reverse equity mortgage.
You need a lump sum to invest of $1,150,000 to receive an after tax and inflation adjusted income of $65,000 p.a. for 28 years when you will be 93.
- Is that the amount you thought you would need?
- How much have you saved so far? Are you on track?
- Is $65,000 p.a. going to be enough to maintain your lifestyle?
- What are you going to give up in retirement?
- How will you replace your car? Have holidays? Visit your grand children?
- How will you pay for your health insurance? – oh you will use the public health system? – good luck.
Lyfords provide on-going retirement advice. It's not just about transferring your pension. It is important to talk with a financial adviser on an annual basis to ensure that you are on track to achieve your retirement objectives.
When you are ready to retire you have probably spent 30 to 45 years building up your wealth so it makes sense to protect it and ensure it grows as effectively as it can without taking excessive investment risks.
One solution to being financially independent in retirement is not to retire. You can only do this if you enjoy your work and have control over it which can work for the self employed but it’s an option with less certainty for employees. Your employer might not want to employ someone who seems to be working less effectively than younger employees who are being paid less.
As long as you have good mental and physical health it is reasonable to expect plan to continue to work far later than age 65.
Rather than retiring suddenly investment advisers at Lyfords recommend reducing your work days to 4 a week. Later, reduce them to 3 days.
Or - consider becoming a business owner. Definition of a business:
A proprietary operation that can work without you.
There’s more to work than income generation. When your children have left home and you no longer have a mortgage it’s great to have a business that can work while you’re having a holiday.
There are days when the sky is grey and it’s cold. On these bleak days staying home can be isolating. At work you could be having conversations with very interesting people. Work isn't just about the money.
Continuing to work to say age 70 or 75 may become the norm for many. You need to plan how to manage this especially if you are currently an employee.
The benefits of working later into your retirement years are:
- Your work will seem much easier because you have spent 30-45 years to become a master – with those finely honed skills you are now an authority. You can delegate the more boring parts of your work to younger people while you work on the things that have the greatest interest to you. You will take pleasure training younger people to become competent.
- You will continue to have meaningful conversations with your colleagues and business associates. This makes life seem worthwhile.
- You will have fewer years in retirement so you won’t need to have saved as much. You’ll be able to spend more time and money on your holidays.
- If you or your spouse needs to enter a rest home you will have a greater likelihood of being able to pay the rest home fees without decimating your accumulated wealth.