I wonder how many of you have actually calculated how much money you need for your retirement.
I did that last night, and after that I couldn’t sleep.
Before I start to tell you about the details, have you ever dreamed what you want to do when you retire? Travel the world? Indulge in hobbies? Buy a boat, a plane, or a small island? Buy a piece of land to grow a durian orchard?
You might want to live out a modest lifestyle. Just eating out occasionally, travelling locally few times a year, petrol money, utilities money, and a subscription to Astro. Have some money kept aside for medical fees and for spoiling your grand kids.
More realistic, but not as easy as you might imagine.
Let’s look at the numbers.
Lets say I allocate RM3000 a month for me and my spouse after I stop working at 60 years old, or RM36000 annually. RM36000 today will not be the same tomorrow due to inflation. Using a handy future value calculator with an estimated inflation rate of 4.5% annually, we see that RM36000 in 30 years will be equal to RM134831.
That’s around RM135000 per year! And this is with an assumption that inflation does not go higher than 4.5%.
Using a most basic and semi-accurate calculation (no inflation and no investment returns)… let’s say I manage to save RM1 million by the time I retire. How long will the money last? 7.4 years.
That means we must leave this world by the time we’re 67, or we will have to start selling off jewelry, house and cars to make ends meet.
The ideal scenario is to have enough money invested, so we are living on the interest and dividends instead of using up our initial capital. Then we don’t have to worry how long we’ll live. We’ll always have money to use and best of all can pass it to our children.
So how much capital will you need to get RM135000 interest or dividends per year?
Using a conservative estimated investment return of 7% per annum, we will get roughly 2.39% returns per annum after adjusting for 4.5% inflation rate. Doing the math, we come up with a huge figure of RM5.6 million.
That’s roughly six million dollars, for a very low profile retirement lifestyle. Didn’t even mention any major medical expenses.
Do you think you can sleep tonight?
(Disclaimer: due to my lack of financial training, my math is probably off. But I’m probably quite close to the mark)
Accumulating RM6 million is really really really difficult.
You would think that you could live a lavish lifestyle of luxury once you became a multi-millionaire. But the fact is, you can only afford a modest lifestyle!
The truly wealthy can afford the luxury because they are assured of getting lots of perpetual income, even if they stop working.
The best I can hope for is to try to make my retirement capital last as long as I can with investment and a tight spending plan.
Of course, I’m probably being overly alarmed about it. Things will probably work out in the end. But I’m not the type of person who will leave things to fate or destiny.
I don’t want to wake up one morning to realize that I’m poor, broke and at the mercy of others. And worse still, I don’t want Poey Chin to go through the situation when I’m no longer by her side.
I don’t want to plan on Rachel or my other kids supporting us. Honestly by the time they start working and have families, I think they will be fighting just to survive on their own. If they are able, then it will be a good bonus. But I feel it’s still my responsibility to plan for my own retirement.
I know I’m thinking about money again. How come Adino is so materialistic and unspiritual? But these are things that fathers have to think about. This is the scary reality that I have to carry on my shoulders.
You may ask me why money is important to me. After all, the best things in life are free. But are they really? Can I really be happy if I don’t have money to give ang pau to my grand kids? Can I die happy knowing that Poey Chin will have to go wash dishes to survive? Will I have a happy family if I place extra financial burden on my children?
I hope people will understand why I’m so reluctant to spend money. I’m not stingy, but I am terrified because I’m in trouble.
My immediate action plan? I can’t say that I will do anything different. I will just go on doing with what I’ve been doing, but now I have a greater target to achieve. I will also start to explore ways to get perpetual income.
Somehow that iPhone 3GS doesn’t seem so attractive any more.
P/S: Read Azizi Ali’s Retire Rich if you want more details on the calculations.