Prince Philip, the husband of Queen Elizabeth, has died at the ripe old age of 99. It is a sad day. Tributes have been paid to the Duke of Edinburgh for his selfless contributions to Britain and his unwavering support to the Queen.
But that got me thinking. How would we feel if we lived long enough to be centenarians, too? Prince Philip was just a couple of months away from lighting 100 candles on his birthday cake.
On one hand it would be fantastic to live to 100. Just think about all the great experiences we could enjoy as each decade goes by. For me, it would be watching technology unfold at lightning speed….
…. I can’t wait to see what scientists will come up with next. Hologram TVs? Flying cars? What about thought transfer?
But there’s a catch. It costs money to live after we stop working. And the longer we live, the more money we could need.
Harsh reality
Let’s assume we start work at the age of 25. Let’s also assume we stop work at 65. That’s 40 long years on the treadmill….
…. So, whatever we have put aside over the four productive decades will need to last us for the subsequent 35 years.
The sums don’t quite add up. That is unless we go the extra mile to save aggressively whilst we are still economically active. Alternatively, we might have to resign ourselves to a lower standard of living once we stop work.
I know which of the two options I would choose.
How long is a piece of string?
So, how big a pot should we aim for when we decide to hang up our boots? That would depend. It is a bit like asking how long is a piece of string because we are all different?
There is a rule of thumb that could help, though. Simply multiply your annual expenditure by 25. That, by the way, is how much you realistically spend every year – not how much you earn in one year.
So, if you think you need $50,000 a year to survive, then your retirement pot would need to be $1.25 million. If you need $100,000 a year, then you would need $2.5 million at retirement.
If your needs are such that you require $200,000 a year, then you nest egg would need to be $5 million. And so on….
Knowing how much we might need at retirement is not just a start, but a reality check. It is also the harder of two parts of retiring comfortably….
…. Next, we have to figure out how to get to where we want to be, which is where investing sensibly comes into its own.
It doesn’t mean taking excessive risks with our money. But it does mean that the sooner we start building your retirement portfolio, the better it will be.
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David does not own shares in any of the companies mentioned.
