still working on how much

It seems as if there are three distinct levels of what you need for retirement: the high end (outlined in this previous post), the middle ground (read on for that) and what the Barefoot Investor calls the Don Bradman (next post).

In October 2015, I read a book from my (then) city library called Twenty Good Summers by Martin Hawes. In it, he talks a lot about how to look at retirement, a working retirement and leveraging assets etc. Obviously at this point, none of that much applies to me but his sections on how to work out how much you need to retire was really quite helpful. According to Martin, most people think they need more than they do but he’s quite upfront about the fact that you can’t actually have everything.

In the book,  Hawes says you need capital of about 10-12 times your desired income but that some advisors recommend anything up to 25 times. Essentially it reads that your capital needs to be enough to generate the return you need to live on (share dividends, term deposits, selling your house etc). In this 2006 book, he suggests $50,000 a year in income, assuming a 10% return on your capital (hence his 10x figure being $500,000-$600-000). This, of course, does not take into account today’s low interest rates for savings and inflation between 2006 and now. And who knows what things will be like between now and 2042?

Using those figures for what’s needed for a single to live in retirement ( $24,250 a year for modest or $43,665 for comfortable (as at January 2018), and multiplying by 12, I get $291,000 and $524,000). Plus your own home.

Desired income is based on what you want to be doing and your expenses. His eight main factors are:

  • the amount of capital you have
  • the lifestyle you want, keeping in mind that expenditure is likely to fall as you get older (except for medical expenses I’m assuming)
  • the house you want
  • how much of an inheritance you want to leave
  • the extent to which you will continue paid work, and for how long
  • any other income you have
  • your age (and how long you can expect to live)
  • your investment returns.

Let’s take those in order but leaving lifestyle for last:

  • capital – bwa ha haaaaaaa, but yes, I would like some
  • house  – I don’t have one yet but I want a cosy home, not huge but with a library and a garden (since I aspire to one day be a gardener and I’ve got a book addiction)
  • inheritance – *shrugs* because it’s not likely that I’ll be receiving or leaving one
  • continuing work – if I find something I love, I want to do that for as long as I can (of course, if I need to keep working to eat, guess what I’ll be doing regardless?)
  • other income – I need to get on that
  • age – early 40s and a while
  • investments – I need to get me some of those.

So, circling back lifestyle. I want to be in my own house (paid off – because all the advice on how much you need from everyone assumes that this has happened) with room for a library and enough garden space for a vegie patch (I will learn how to garden), driving a car that will last until I can’t drive any more (paid off), and be able to afford travel, friends and books.

Hawes also says to take inflation into account when planning as you need your capital to be returning an income higher than inflation each year. Which means that your capital also needs to continue to grow, which confuses me as he also talks about changing what you have as you go into retirement so it’s more stable (and therefore not returning higher rates). Confusing but I guess I have a few years to work that out but not as many as I would have had I started this thinking back in my early 20s.





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