What Is Your Retirement Number?

By now you should have read a lot about saving for retirement and why it is necessary to plan ahead early in your life. There are a number of articles mentioning how you should save early and some even mention that you would need a specific number to retire. This so-called ‘magic number’ is what most advisors would refer to as the amount of money that you need in order to be able to retire safely or comfortably. Most important of all, do you know how to get that magic number?

To find out your retirement number, you would need to know the following numbers:

What are my expected expenses (in current money)?     RM ________

How many more working years until I retire?     ______   years until retirement

How many years do I want to save for?        ______ years of expenses

Mr Alan is currently 45 years old.

He is planning to retire at age 60. (15 more years until retirement)

He is planning for his lifestyle until age 80 (20 years of expenses)

*Assuming that annual inflation rate is 3%.

Calculate Your Monthly Expenses When You Retire

First of all you would need to know what your current expenses are. Based on your current expenses, you would need to estimate how much the expenses would be when you retire. Most people would assume that they have settled their housing loan and car loans, but it would depend on individuals if he/she wants to include these debts as well.

Daily Meal	_______  (X 30 days)
Monthly Utilities & Maintenance	_______
Monthly Wellness & Medical	_______
Transportation	_______
Misc. Pocket Money	_______
Yearly Holiday	_______ ( / 12 months)
Other Outstanding Debts	_______
TOTAL:	_________

However, to save you the trouble to estimating your expenses, you can just assume that all your monthly salary is your monthly expenses.

 Let’s assume that the inflation rate is 3%. This would mean that your expenses would increase 3% every year and compounded until the year you retire.

 The formula :

If you just want a rough estimate, use the sample range of expenses below.

Expenses (RM)	Years to Retirement
	10	15	20	30
2,000	2,687	3,115	3,612	4,854
3,000	4,031	4,673	5,418	7,281
5,000	6,719	7,789	9,030	12,136
8,000	10,751	12,463	14,448	19,418
10,000	13,439	15,579	18,061	24,272

An example from this chart shows that if Mr. Alan has a current monthly expense of RM5,000, and he is retiring in 15 years’ time, his projected expenses when he retires will be around RM7,789 per month.

Calculate Your Total Expenses Post Retirement

Now that Mr. Alan knows his projected future monthly expenses, he would need to know what will his total expenses will be for the rest of his retirement life. As a reminder, there is an inflation of 3% per year.

Future Monthly Expenses	Post Retirement Years
	15	20
2,700	602,000	870,000
3,500	781,000	1,128,000
5,500	1,227,000	1,773,000
7,800	1,740,000	2,515,000
9,000	2,008,000	2,902,000
14,000	3,124,000	4,514,000
18,000	4,017,000	5,804,000

As his projected monthly expenses is approximately RM7,800, his total expenses post retirement will be around RM2,515,000. Congrats to Mr. Alan, he would need about RM2.5 million to maintain his lifestyle till the age of 80. That’s a lot of money to save!

Plan Your Retirement

Now that you read how to get your magic number, go back to the top of the page and really start to calculate your retirement goal. Where would this money come from? An individual can have a few sources of funds to reach this goal.

What if you do not have these plans done yet? You should be talking to one of our financial consultants to see how we can assist you to close the retirement gap.

For more financial wisdom & tips, please proceed to follow or like FinSonia Facebook Page. 
At FinSonia, we believe in educating the public on the right wealth management philosophies.