Welcome to video 6 in our series about the 6 building blocks to financial success. In this video, we’re going to talk about block 5 which is planning for retirement. So in our previous blocks, we talked about how we want to build and protect your wealth over a period of time. Hopefully, now you’ve got a nest egg that you’ve certainly been able to build and you want to think about retirement.
How much do you need to retire? That’s the most common question that we get. So if you’ve decided that you need to get an income in retirement of $60,000 a year, you need to live off $60k a year, the industry average that will say that you need $900k in assets to be able to afford that. That’s 15 times what your salary requirement is.
Now, I don’t necessarily agree with that because I think we’re going to live longer. I believe that you need $1.2 million. It’s what I call the rule of 20 so you need 20 times whatever you require. So let’s just say if you want $50,000 a year in retirement, you need $1,000,000. If you need a $100,000 in retirement you’d better get your skates on because you need $2,000,000. This is all other than your house. Your house, hopefully, we are looking at having that paid off, but we want to make sure that you’ve got, say, $900,000 or $1.2 million in other assets that are going to be generating income, growing. Those assets are just there to fund your retirement.
So we are going to look at the average lifestyle in retirement. This $60,000 you might decide well I need more like $100,000 in early retirement because I want to go and get a lot of travel done. This is what we call the early active retirement. This is, again, that international travel that you’ve been able to now do because you’re not working, you’re not in your business anymore, you’re not tied to living where you are living and you’re able to go and do the things you’ve always wanted to do.
After a while, you get sick of that. You’re happy to spend a lot more time at home with the family and just in your home, in general. This is what we call middle retirement. You still may be doing a lot of travel, but it’s more domestic travel, now, spending a lot of time with kids and going and doing a lot of local sort of stuff, instead. Your expenses during the middle retirement phase will be more like $50,000 a year. That will hopefully go on for a long time.
Unfortunately, at the back end of life when you are starting to need a lot more medical attention and those medical expenses do come along and you need for instance age-care facilities, your expenses do increase, and you might be spending more like $100,000 again in those later years of life.
So we want to take into account the fact is this is what an average retirement might look like in terms of your living expenses. We want to make sure that we have enough money prior to retirement to be able to factor all of that in. Again, it’s using the rule of 20. If you think that you need $60,000 a year to retire, you need to get roughly $1.2 million in other assets other than your house to be able to afford that.
In the next video, we are going to talk about leaving a legacy. We hope you’re enjoying the content. Again, please like us on Facebook and check out all the other videos on the YouTube channel and also our website. Thanks very much and we’ll see you next video.