Readers' Submissions

Retirement Funding

  • Written by SXGD
  • December 3rd, 2007
  • 9 min read


There are on-going submissions as to retirement funding. The amount you need to retire is probably not as much as you think. Let me explain my logic.

I have no comment to make as to how much each person requires for their retirement, but I will show you some internet tools available for you to work out when you have enough to retire.

I am English, just about to turn 39, Jo average, average to good job, no kids and have lived in Sydney, Australia for 11 years now. My nirvana is the Philippines, each to their own. I wish to retire at 45. I decided 2 years ago that I wanted to get out of the daily rat race and have a quieter life, but as the same for everyone, you need monies for a roof over your head etc.

I started to use that all knowing God Google. There are many retirement calculators on the internet, some complicated, some simple. See this link for the one I use. Find your own if you wish to verify the calculations.

http://www.planningtips.com/cgi-bin/retire.pl

Example Number 1

As I said I have no comment as to how much you need so I will for example number 1 use Stick’s response to "Living on 20K baht / month."

As of today 25/11/2007 the OZ$ / Baht exchange rate is 25.58

So using Stickman’s 55,000 baht a month living expenses = 660,000 baht = AU$25,801 a year.

So using the calculator I am 39 and want to retire at 45, in 6 years.

Assuming 3% inflation and 10% earnings. (Got to assume something).

I expect to live as per the average age of 75, so that’s 30 years in retirement.

So the calculator shows I need a lump sum, in 6 years of $416,779, to have an index linked income.

http://www.planningtips.com/cgi-bin/retire.pl?with=25801&lngt=6&lngt=30&pay2=3&intr=10&outt=HTML+Tables&Calculate.x=53&Calculate.y=12

Or if I was 45 years old now, I would need $349,045 for 30 years of retirement, if I retired tomorrow and have an index linked income.

http://www.planningtips.com/cgi-bin/retire.pl?with=25801&lngt=0&lngt=30&pay2=3&intr=10&outt=HTML+Tables&Calculate.x=0&Calculate.y=0

Example number 2

As I said I wish to retire to the Philippines. As of today 25/11/2007 the OZ$ / PH Peso exchange rate is 35.80

I wish to have at today’s value AU$1,000 per week to live and AU$1,000 per month for rent / bills = AU$64,000 a year (AU$5,333 per month) This is 190,933 peso a month.

For comparison the AU$5,333 per month based on the example number 1 current exchange rate of 25.58 would give a retirement income of 136,418 baht per month. From the discussions on the Stickman site this would be a very reasonable expat income.

So using the calculator I am 39 and want to retire at 45, in 6 years.

Assuming 3% inflation and 10% earnings. (Got to assume something).

I expect to live as per the average age of 75, so that’s 30 years in retirement.

So the calculator shows I need a lump sum, in 6 years of AU$1,033,830.

http://www.planningtips.com/cgi-bin/retire.pl?with=64000&lngt=6&lngt=30&pay2=3&intr=10&outt=HTML+Tables&Calculate.x=60&Calculate.y=11

Or if I was 45 years old now, I would need $865,816 for 30 years of retirement if I retired tomorrow and have an index linked income.

http://www.planningtips.com/cgi-bin/retire.pl?with=64000&lngt=0&lngt=30&pay2=3&intr=10&outt=HTML+Tables&Calculate.x=0&Calculate.y=0

Sorry to bore you with 1 more set of figures.

Now until 2 years ago when I had my epiphany about my Philippines nirvana, although I knew about compound interest I did not truly understand its wonderful effect. Let me show you.

There are many savings calculators on the internet. My simple choice is the ING bank’s.

http://www.ingdirect.com.au/Savings_Calc.htm

Now as you saw above I have worked out my AU$1,033,830 number for retirement in 6 years.

There are many ways to save money – housing, superannuation (pension / stippend) stocks shares etc. Each to their own.

I basically own a standard greater London area UK house and have a small UK and OZ pension. In total as of now worth around AU$720,000. Not a lot, because in the UK this just means a roof over your head. However it has increased every year from when I bought it, through the ups and downs of 17 years of the property market at an average of 7.15%. Plus now I rent it out and get a rental income on top of that.

Using the ING calculator, $720,000 over 6 years at 7.15% (ignoring the rent) in 6 years time I will be worth AU$1,105,672 with having done nothing, due to compounded interest. All with no other deposits.

This means that I will have enough in 6 years to retire for 30 years and live on a great income. Add to that the rental income and any other savings I will easily have passed my savings value required. All this on a single UK based roof over my head!

I do fully understand that inflation fluctuates, interest rates vary, housing can go up and down, currencies can fall, allowances for holidays / medical etc.

Also I will have to consider at some stage how I sell the property (or borrow against it) to fund the retirement.

Above was just a basic scenario. I have actually done my numbers on lasting 35 years in retirement, with a lower interest rate on my savings and allowed for a change (fall) in the AU$ and the UK pound. I have worked out the best investment vehicles for me and have worked out exactly how much I have to save over the next 6 years. I just do not want to bore you (more) with more numbers.

Additionally this works for me as I have no kids, (had the snip 4 years ago) and do not have to leave an inheritance to anyone.

I am saving, still go out and have fun, so my whole life does not revolve around the Philippine equivalent of “Jasmine Fever”. I just want to retire at 45 and enjoy live, not have to work till I am 65 and then be too old / tired / broken to enjoy.

It should also be noted that the above income is based around partying hard everyday for the 30 years! Although I would like to think I have the stamina for that I believe I will slow down! L J

I met an American expat in the Philippines earlier this year, who after the initial first 3 years of partying hard now comfortably lives (before the US$ crash) on US$2,000 a month, 50% of the amount I have allowed myself, excluding all of the fluctuations I listed.

Also the small things that you do can have a huge change on what monies you can save.

If like me you work Monday – Friday, then over one year minus holidays etc we work approx 220 days. Something a minor as buying a case of 24 cokes (at 50c can) rather than buying the $1.60 can each day from the 7 Eleven can save you a fortune. Same can, no decrease in your enjoyment, would mean over $2,200 in your retirement fund over the 6 years including interest.

This might sound insignificant but if you add up all the little things, the money that just seems to disappear, it can only help your retirement funds.

We all know how hard it is to earn monies, or get a pay rise at times. Every $1 you waste you probably had to earn $1.25.

Twp years ago when I had my epiphany I sat down and just made sure that all my bills and services were the best value I could get. When you work out how many hours or days you have to work just to pay a bill it is a good feeling to be able to reduce some of the bills.

E.g. Household insurance. I was paying $1,000 for the luxury of spreading the payments over 12 months. Found another company (both reputable & well known) whicj only did annual policies, like for like policy, for $600. Each year the money I save goes straight into the retirement fund. Again no decrease in what I get, just a nice saving for getting off my arse and making some phone calls, rather than just paying the renewal.

So you can easily work out how much you think you need and just play with the variables.

Noting the value of people’s houses in Western countries, most people might be nearer to be being able to afford retirement than they think.

All of the above assumes that you do not work. Get a job, any job, and financially things get much better!

I keep on reading that people say you get bored in retirement. That is a risk I am willing to take! If I get bored I could always take a small poor paying job, or do what I see a number of the expats in the Philippines do. Do charity work, teach school kids English (free lessons, not as a paid English teacher), visit the orphanages once or twice a month and take pizzas to show you care, play Santa as Xmas, Easter eggs at Easter so that you can give back your time to people less fortunate, rather than chasing the money until you drop down dead. I am sure that after a while there is only so much sex a day you can have (is that true!?), and I am not a great beer drinker!

I appreciate that everyone will have different costs (ladies etc) but just play with the calculators. I am not saying that my interest / inflation assumptions are 100% correct. Every 6 months I give my finances a health check, to make sure I am on-track. I know things can change, just look at the USA housing crash and US$ decline. All I can do I look at the past (in my case 17 years house price increase and inflation history) and health check myself over the next 6 years, and ensure a buffer in my projections.

The future, is well, the future, and what will be will be. I might not even make 75 years old, so there will be too much money in the kitty anyway!

Retirement could be closer than you think. It could be the best spent 30 minutes of your life! Other than Nit, Noy, Pon or Porn!

We only live once, we are a long time dead.

Stickman's thoughts:

Very interesting. I admire your discipline to save so well, and your forward thinking as well as your refusal to play a part in the rat race any longer than is necessary.

The thing that concerns me and one which may catch out those with plans similar to yours is currency movements. I am of the belief that Asian currencies will increase in value over time. I would not be surprised to see the $US back at around 25 to the baht in 5+ years' time. And I also bet that the Euro, the pound and all other major currencies will not buy nearly as many baht in the future as they do now. That will scuttle, or at least seriously delay, some people's Asia retirement plans. I do get the feeling however that the amount you have saved should be ample.

One thing though. Do you really think you will be bonking non-stop for the next 30 years? You don't think it might get boring after a while?!