No matter what stage you are at, we all think about one day finishing work and retiring.
- How far away will that be?
- What will I do when I stop work?
- What sort of lifestyle will I have?
- How much money will I need to support that lifestyle?
- Do I have enough?
- Will I have enough?
Some of us will be closer to retirement than others – but we all think about it!
We have many unanswered questions that give rise to uncertainty.
However one thing is certain – one day we will stop working by choice or otherwise – so we need to think about when that might happen and how we might fund our lifestyle from that point on.
We may have started already preparing for our future retirement through superannuation, savings or growing the value of our business, but we need to determine:
- What will we need when we decide to retire?
- What do we have now?
- What is the gap?
What will we need when we decide to retire?
The first step in developing a retirement plan is to work out how much you need to live the lifestyle that you want.
When we choose to retire we will need to fund non-discretionary and discretionary costs.
Non-discretionary costs are for necessities such as food, clothing, health, power, transport, rates, insurance, etc. Discretionary costs are for items like holidays, travel, gifts, entertainment, etc.
Each person’s circumstances will vary and the composition of non-discretionary and discretionary expenses will be different based on factors such as where they live, age, health status, family members living with or supporting them, travel and entertainment plans, etc.
To fund these costs, you will need to have accumulated income-producing assets that will have enough capital value and produce enough annual income to pay for these costs as they emerge for the remainder of your life.
Just how much that needs to be will vary for each person and will depend on factors such as:
- annual total of non-discretionary and discretionary expenditure
- life expectancy from age of retirement
- annual income and capital growth on assets accumulated
- tax rates applicable to income and capital gains derived
- the value of capital you wish to retain for your family through your estate
It is possible to consider all the variables relevant to you and determine an amount that you will need in order to comfortably retire.
It does not mean that you have to retire, but rather you can choose when you want to retire.
The first step is to know what you need in order to retire.
Instead of aimlessly drifting, you can work out a plan that is going to provide you with the level of assets you need to allow you to retire when you choose to.
It is never too late to start.
You need to ……..Mind the Gap.