Lynda Moore is reluctantly drawn into thinking about how to prepare your finances for retirement, to prevent them running out before you do

I have reached that stage in life, where I have a six as the first number when you complete those questions that ask what age range you are in. 

I certainly don’t feel that age, and sometimes just to be sure that I really am, I do the quick calculation from my birth year just to make sure I am right (I accidentally aged my daughter by a year, so it does pay to get the calculator out every now and then).

I also can’t see myself ‘retiring’ at 65 as my dad did. I love having my business, I really enjoy interacting with my clients. Plus, it gives me a very nice lifestyle.

Most of my friends are in the same age bracket and are at various stages of the ‘R’ word from being still involved in their business to working part time for someone else or not needing paid employment and are giving back their time in various ways.

We do, however, find ourselves having the conversation about how much money we think we need to enjoy the latter stage of life.  So being the accountant amongst us, most eyes were on me.  I seem to have drawn the short straw to come up with something that could be useful, so I thought I would share my findings and thoughts with you as well.

This whole question of how much you need, which we are all agreed on, comes down to whether you are in the fortunate position of owning your own home, with no mortgage, versus either renting, or still paying a mortgage into your 60’s.  That is a huge part of the how much do you need question.

So, I did a bit of digging, or should I say, Mr Google happily sent me a gazillion references that I could look at, and as my house project is nearly complete, and I have a little more spare time, I dug into just a few.

Have you heard of the ‘rule of 25’?  I quite liked this as an idea, as it seems quite simple to calculate.  You take your current spending, or what you would like to live on when you retire, then multiply it by 25 and there you have it, that’s how much you need to have saved for your retirement. For example, if you want $100,000 a year to spend in retirement, you need to have saved $2.5mill.  If, like me, you don’t intend to stop generating income, that reduces how much capital you would need to have.  If I’m going to continue to generate say $40k a year income from my business, then that means I need $60k x 25 which equates to $1,500,000. 

Of course, it’s never that simple, as you have to consider the type of investment, risk and all that other fun stuff that a qualified adviser (not me), can tell you about, but it gives you a starting point to work from.  The other interesting point to note here, is that we are talking about income generating savings, not the value of your home (unless you do generate income from it) as being part of your retirement savings requirement.

Another interesting idea was to take your salary and multiply that by 10.  OK, so if your current salary is $85,000, then you need $850,000 tucked away.  This suggestion didn’t give any idea as to how long this was going to last you, but logic would say 10-15 years maybe. 

I have also read Tony Robbin’s book “Money, Master the Game”.  There was a really good section on this whole question of how much you need to retire on.  That is worth looking at to gain yet another perspective.

It seems to me that the problem with any of these rules of thumb type calculations is there is still the concern that your money may run out before you do!

I don’t think I am any closer to coming up with a magic number for either myself or my group of friends.  The conclusion we came to is that is as variable as we are. What might be right for me, may not work for my friends. 

The best advice I can give you, is play with some of these rules of thumb calculations, then get some advice from the experts in this space.  And of course, do it well before you have that six in front of your number.

Not only do I want to be young at heart.  I want my bank account to be that way too.

*Lynda Moore is a Money Mentalist coach and New Zealand’s only certified New Money Story® mentor. Lynda helps you understand why you do the things you do with your money, when we all know we should spend less than we earn. You can contact her here.