Don't Retire BROKE - How to Calculate Your Magic Number and Enjoy Your Golden Years

foreign [Music] how do you find your enough to retire finding your enough is can be incredibly difficult particularly if you are years off retirement and it's important to realize that you're enough can be completely different to your friend to your colleague to your parents and even to those who you might today have quite a similar life to so in this video we're going to go through how to find your enough what the different levels of retirement actually look like and how you can go about specifically finding your number I'm Jared Brown Australian expat financial planner here in Singapore working with Australian expats to Define their enough and to plan for their future retirement so let's Dive Right In [Music] thank you [Music] now in economic terms or financial terms finding out enough means that we are getting the greatest level of fulfillment per dollar that we actually spent so in economic terms this is maximizing utility and this is best represented in the chart that you can see here as we spend more dollars you'll see that we hit this maximum point and that is our enough whereby we have enough money to spend on what makes us truly happy and what aligns with our values and this really ties into the retirement levels or retirement categories when we look at a modest retirement which you can see here on the bottom left a comfortable retirement and then a luxury retirement and that luxury retirement is really where it is now enough that is where beyond that point it is too much and we've gone beyond what we actually need to truly make us happy so let's have a look at what the asfa defines us how much we need to actually achieve those levels of retirement and to be happy in our retirement years let's have a look now as I mentioned there are three key categories of retirement the first is a modest retirement this is where we have enough to cover the basic necessities it is greater than the age pension but certainly not enough to really cover replacing shoes clothing when they're worn out on a regular basis maybe enough for a very modest domestic holiday once a year and not really enough to be dining out on a regular basis or Beyond sort of budget haircuts you'll see a bit of a summary shortly in a table where we look at the comparison between the modest comfortable and luxury retirements now in a comfortable retirement this is where we can go for regular haircuts in Australia importantly we don't have any concerns about keeping the air conditioning on so utility bills are not a major concern for us we can dine out once or twice a week at different restaurants we can take a once a year domestic holiday and a once every few years depending on the amount we spend the asfa the Australian are the association of super funds in Australia believes that that is once every seven years to be taking an international holiday in some cases that could be a little more frequently obviously it depends on how much we spend and the luxury category of retirement as I mentioned where we're getting the greatest fulfillment for every dollar that we spend in retirement this is where we're obviously not worried about haircuts we can take one or two overseas holidays every year we can replace the clothes the shoes when they're worn out we can obviously buy gifts buy those luxury goods that make us happy in retirement if that aligns with our own values again it's important to recognize that a luxury retirement or that level of spending may not actually be suitable to everyone it may not align with our underlying values somebody who believes spending uh five thousand dollars on the latest MacBook is a great idea and somebody who believes that is a complete waste of money it doesn't mean that one is right or one is wrong despite being a big level of lover of Apple products myself it just means that one aligns with the values of one person and not with the other so it's important to work out exactly where you it and what level of spending is really going to make you happy in retirement now let's have a look at the actual numbers behind each of these categories [Music] so again looking at what the asfa estimates that you need to retire in Australia for a modest retirement they estimate that you need approximately forty three thousand dollars for a couple to achieve that modest retirement so we're not far above the age pension in Australia but we are a little enough which is what gives us the ability to fund some of those other lifestyle decisions those lifestyle expenses above and beyond what a pension would cover for a a comfortable retirement that would mean that as a couple we would need about 66 000 per year in after tax money now I should highlight that these figures are assuming that we own our own home so there are no rental expenses or mortgage expenses stacked into these numbers if you're not planning on owning your own home if you're or if you're planning to have a mortgage in retirement then obviously you would need to add that annual repayment to these figures that we're running through today and for a luxury retirement this is where there is a lot more variation because it depends and varies uh between each individual but across our client base and across the plans that we are putting together for our clients we are looking at a luxury retirement starting anywhere from 85 000 and working all the way up to a million dollars a year now again there is no right or wrong that does depend on your own situation and what aligns with your own values so that's a roughly how much we would need coming into our bank account each year to give us that lifestyle that we desire now let's have a look at how we actually work out or how much do we need in total and how much do we really need where do we actually sit between each of those three categories let's explore the different models [Music] now there are three different rules of thumb when it comes to determining how much you need to retire the first which you may have heard of is the four percent rule this means you take your annual amount of money that you need to retire so how much do you need coming into your bank account every month multiplied by 12 to live the life that you want in retirement you obviously multiply that by 12 you divide that by four percent and that is what gives you the number that you need to have saved in your retirement portfolio so for example if we need a hundred thousand dollars a year we divide that by four percent and that gives us 2.5 million dollars per year oh sorry 2.5 million dollars in total that we need to fund our retirement now the next rule of thumb is the 70 rule this means we take 70 of our annual income and we assume that that is how much we would need in retirement now personally I'm not a big fan of this one because particularly for Australian expats incomes can vary incredibly depends on how many kids we have what the school fees look like what tax rates we're paying but it does give us a bit of a Rough Guide so if you are earning let's say two hundred thousand dollars per year you would take seventy percent of that which is one hundred and forty thousand and that's how much you would need each year to fund your retirement now the next rule of thumb is what they call the 25-year rule so you simply take your annual amount that you need to spend and you multiply it by 25. it really is just another way of wording or describing the four percent rule so again if we need a hundred thousand dollars a year we multiply that one hundred thousand by 25 which gives us 2.5 million dollars so you can see where we get the same number as the four percent rule it's just a different calculation very slightly now what I would say is a far better tool is to actually utilize a budget calculator yes it is a bit of a mundane process it does mean a bit more work but it is going to be tailored to you so you can utilize the moneysmart calculator from Acid there are a number of different tools online and obviously you can utilize ours as well you'll find a link in the notes and this will give you a guide of how much you actually think you will need to spend and when you retire it breaks down the different categories you can look at how much you think you'll need to spend on holidays how much on rent or mortgage if that is going to apply what you'll spend on utilities memberships gifts donations to charity whatever it may be it is tailored to you so now that we have an idea of the different categories of really what we're trying to achieve in defining our own enough and we have some general rules of thumb what should you actually do next to Define yours let's have a look [Music] so as we've been through today the first step is really defining how much money you need coming in each month to live the lifestyle that you would like to live whether it's in the modest the comfortable or the luxury category obviously as I mentioned we really want to be targeting that maximum fulfillment from each dollar that we spent the second is to make sure that that amount does accurately reflect your own values so we're not simply taking it from a website that said this is how much you need to retire or you're doing it because your friend or your colleague said that's enough it really needs to be based on your own values the third key step is to make sure that it does reflect any tax rates that could apply so here we're getting a bit more into the nuts and bolts but if your retirement income is going to come solely from rental income from properties the tax rate and the cost of generating that income may be a lot higher than say from a portfolio of dividend paying shares so that's certainly an important step now once you've defined those first three you've got a couple of options you can book in a free 30-minute discussion with myself to start reviewing your own plans defining your enough and the steps that you need to take to get there if you're not quite ready for a one-to-one chat with myself not quite ready to engage a financial planner that is absolutely fine I've also built a free online tool where you can explore your how much is enough so you can answer a few questions it's personalized to you we will get that and we will come back to you with some general suggestions General things that you should be thinking about and if you wish to take that to a one-to-one discussion you're more than welcome to if you don't that is absolutely fine also but I'm sure you'll get a lot of value out of it so thank you very much for tuning in to this video I hope that it shed a bit of light into finding your how much is enough but if you have any questions at all drop me a note in the comments thank you very much for tuning in and I look forward to seeing you next time foreign [Music]

Channel: Jarrad Brown - Australian Expat Finance

Views: 13,316

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Id: 8xvs8EmVfFI

Length: 12min 13sec (733 seconds)

Published: Thu Apr 13 2023