The Magic Retirement Number

Johann Buhr
Johann Buhr

We are often asked how much money a person or a couple needs to have invested in order to retire comfortably. If the answer really was some magic number, you would likely not need a financial advisor. You would simply have to save and invest until you reached that magic figure and then retire and relax, says Johann Burh, Regional Head at The Wealth Corporation.

A magic retirement number would make many other key financial decisions in life far simpler. Can you afford to send your kids to private school? Can you afford a bigger house or a more expensive car? If any one of these choices boils down to you coming up short for that magic retirement number, the decision is simple. Unfortunately, the reality is far more complicated.

In the financial press much focus is placed on investment generating returns, and for good reason. However, cash flow is a two-sided coin. Equally as important as cash inflow is cash outflow. Each person’s retirement “number” is different and is dependent upon their monthly expenses and lifestyle goals. You need a cash flow matching investment solution for your retirement plan, and the amount you need to have invested needs to correlate with your anticipated rate of withdrawal.

It is very challenging to try to estimate how much money you will require to meet your lifestyle goals and living expenses in retirement. Inflation is a key reason for this. Your best bet is to estimate what you will need in today’s terms and factor in the anticipated rate of inflation. This requires sophisticated financial planning software and is not something the average person is equipped to do by themselves.

Just as no person is alike, so no financial plan should be alike either. Each person has different priorities, varying risk management requirements and tolerances, and unique lifestyle goals. In addition, your finances should not be your sole consideration.

To create a comprehensive retirement plan you need to take cognisance of your practical and emotional needs as well. Your advisor should have a clear understanding of your support system of family and friends, your state of health, your current and future work opportunities, your interests and hobbies and so on,  in order to help you to adequately prepare for the future in all respects.

How are you going to spend your time when your work commitments come to an end? Where would you like to live and is this somewhere that your family and friends will be able to access easily? Will you have the financial and practical support that you need should your health fail? These are all key questions that require answers and your advisor should help you to find them.

If reaching a magical number was all that was needed to enjoy a happy retirement, all that you would need to plan for your financial future is a calculator. Retirement calculators are useful tools to promote financial literacy and illustrate the importance of saving and investing for the long term. Visit our website and give our retirement calculator a try. It is a great tool to help you to understand the effects that such variables as the rate of return, cash flow and inflation have on your retirement pot. Most importantly, such tools help to illustrate the negative effect that delaying saving for retirement has.

As technology improves, more and more people are using retirement calculators in place of professional advice, falsely believing that they are able to “go it alone”. However, a retirement calculator is unable to take into consideration the practical and emotional aspects of retirement, which are so critical to ensuring that all your needs and goals are met. Equally as important, a retirement calculator is unable to provide the support and sage advice needed when markets fluctuate and the heart begins to rule the head.

Retirement planning is a complex and nuanced process.  It involves so much more than helping you to reach a magic retirement number – although some advisors will have you believe that it is and that all you need to do to reach that number is to sign on the dotted line while they wave their wands.

A retirement calculator, however sophisticated, is unable to help you to find the answers to key questions about what your life in retirement will be like. It is unable to factor into consideration the changes you and your family go through as you grow and your needs change.

You need a qualified financial advisor who is able to act as a sounding board for the important financial decisions you make in life. Someone who is able to walk the road to your retirement with you, providing the support you need along the way to reach your goals and helping you to understand what your tomorrow holds so that you can welcome it.

DISCLAIMER: This publication has been compiled for information purposes only and does not take into account the needs or circumstances of any person or constitute advice of any kind. It is not an offer to sell or an invitation to invest. The information and opinions in this publication have been compiled by The Wealth Corporation Proprietary Limited (The Wealth Corporation) in good faith from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. The Wealth Corporation accepts no liability whatsoever for any direct, indirect or consequential loss arising from the use of this document or its contents. The Wealth Corporation Proprietary Limited (registration number 1996/013143/07) is an authorised financial services provider.

About The Wealth Corporation

The Wealth Corporation was founded in 2001. Since then, they have experienced considerable growth and gone through many changes, including the establishment of a national footprint and their partnership with Citadel in 2012. They have a proud history as being thought leaders in the industry, developing best practice in client service and advice processes and leading by example. Their advisory solution offers a complete view of the retirement planning and management process, looking at all aspects of financial and personal well-being. This process is called Integrated Insight.

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