Expat Money Blueprint:
How much do I need to Retire?
How much do I need to retire?
- The first step is to work out how much you need in retirement.
- Can use a few rule’s of thumb to determine a high level number.
- This sets a broad target, and allows you to benchmark your current savings and pensions against it.
- If you don’t have savings OR a pension then it tells you how big the mountain is that you need to climb.
So I’ve got a quick exercise for you.
Want you to write down the answers to the following questions:
- how much do you currently spend on an annual basis? If you don’t know – what is your current annual income and do you save anything on an annual basis? If so, take those savings off you income and that gives you your annual spend amount.
- Would you be happy to receive this amount for the rest of your life? Either you would like it to be a bit higher, or you would be happy to receive less.
1.1 Calculation 1: First rule of personal finance: the rule of 20 & 25
The rule is this:
Desired annual spending x 20 = lower retirement target
Desired annual spending x 25 = upper retirement target
If you had this pot of money, in theory you could retire today and never run out of money for the rest of your life!
Let's look at a few examples:
If you want to retire with an annual income of £40k then multiple this by 20 and 25 and you’ll see your target is £800k to £1m.
If you want to retire with £100k then your target would be £2-2.5m.
So why does this calculation work? It assumes that your can withdraw between 4-5% of your pot of money every year, and if it was sat around in cash then it would last 20-25 years.
But hopefully it will still be invested whilst we are in retirement, and therefore never run out. Plus as we get older we tend to spend less, so the withdrawal rate might be 2-3%.
So this is a ball park number only, BUT its worth spending some time over the coming weeks to think about what your number is – because really its driven by your consumption of material items. So the less you want to buy, the lower your target and therefore the easier it is to reach.
If this the first time you have ever calculated your retirement target then this probably looks like a massive number. I’ve actually never heard anyone calculate it and go- wow that’s much less than I thought!
But don’t get put off – you might have more than you think by the time you retire if you already have a pension. And also – this is why you are going to take action over the course of the emails I’m sending you.
Find out more about my 1-on-1 finance coaching: