Retirement Planning

For some people retirement will be hanging up their boots and pursuing the things they’ve never had the time to do during their working lives. For some people it would be more apt to talk of ‘financial freedom’- having the security in place to pursue your own vision, business, or simply take a job that you’ll enjoy rather than working one that you dislike, simply because it pays the bills.
Irrespective of what country you are from and how you envisage your future there will be unavoidable fixed expenses ahead of you- holiday, insurance, tax, medical expenses, travel, utilities, house and car maintenance, birthdays, leisure…

If you are a non-smoker and you reach the age of 65 you are likely to live another 20 years to 23 years depending on whether you are a male or female.

In order to maintain a modest lifestyle on $50,000 a year of income you would need to have a lump sum of $1,000,000 dollars at retirement age.

This assumes you can achieve a 4% return on your assets and the inflation rate averages 3%.

Your Japanese bank account pays you a princely 0.01% p.a and your bank account in your home country, despite paying a much higher rate of interest in reality only pays a high nominal interest rate (one that does not take inflation into consideration) meaning that the AER (annual equivalent rate- the REAL rate of return) is often below the rate of inflation (Filipino Peso, Indian Rupee and Canadian Dollar being prime currency examples of this unfortunate phenomenon).

In spite of economic downturns, taxes, paycuts, unemployment, living and leisure expenses, children, mortgages and liabilities how do you expect to accumulate enough money to provide for yourself and your loved ones come the time, which comes for all of us, that you are unable or simply unwilling to work? We are here to point you the right way; most importantly when you didn’t know that you needed directions.

Time’s have changed. The government will not pay for you. It can barely pay for itself. Retiring with dignity will only be an option if you make the choice to do so and the odds are stacked against you. According to figures from the Federal Reserve, a $100,000 short-term cash-deposit would have generated $4,780 in annual income five years ago. By late 2012, that same cash-deposit would generate only $190 in annual income. With rates so low, you have to save more to produce sufficient retirement income.

Government pension systems are also being put under historically untested levels of stress with armageddon-type forecasts across the UK, Europe and US.

The US, despite receiving the most exposure as a failing state support system is unfortunately not the only country with problems. The following is a table of retirement savings shortfalls by country, compiled by HSBC UK.

The retirement price tag doubles for thirty-somethings. If you are less than 35 years old today, your price tag for retirement at the same modest level is $2,000,000 based on the same assumptions with inflation being the key factor. Furthermore, if you reach the age of 65 and are a non-smoker there is a 1-in-10 chance that you may live to see, and even exceed 100 years of age.

Over nearly the past 100 years, U.S. inflation (as measured by the Consumer Price Index) has gone up at an average rate of 3.21% a year. At that rate, prices double every 22 years. Therefore, if you are 21 years old, you are likely to see prices double twice by the time you reach the retirement age of 65. Because of the compounding effect, this means things will be roughly four times as expensive at that point (i.e., a $1 item would double to $2 in the first 22 years, then that $2 would double to $4 in the second 22 years).

So, if you are 21 now and think that $25,000 would be a reasonable amount of income in today’s dollars, you had better plan to save enough to provide $100,000 a year. Of course, given the average life span discussed above, you can also expect to see prices nearly double yet again during your retirement years.

If you weren’t born with a King’s wealth you’re going to have to plan, to build the castle.

Speaking with a highly trained and experienced Tyton advisor can help evaluate your finances objectively and without bias. Benefit from our repertoire of skills that can include cash and debt management, asset allocation, investments, insurance, retirement planning and estate planning strategies to ensure that you’re not missing out. We pride ourselves on being extremely good at what we do. You wouldn’t try to represent yourself in a court of law, nor would you try to school your children by yourself- not because you’re incapable- but because it’s a full time job and similarly unless you’re giving your finances and the market at-large all of your attention, day, month and year-out, then you could benefit from having professionals on your side.

Speak with a Titan advisor today to see if you’re doing all that you can do to remove some of the uncertainty of the future. Drop us a line on the Contact Us page.