Last week we gave you what we hope were some valuable tips to help ensure your retirement savings can go the extra mile.

This week we want you to stop and think about how much money you would need to make getting up for work every day a choice? What if you didn’t turn up to work tomorrow, how long could you survive before you had to come back to work?

These are likely questions you’ve never considered before, and you probably don’t (yet) have answers.

But guess what… one day these questions will need some serious thought. We’d go a step further and suggest that these questions should be given some thought now! That’s because as financial advisers, we’ve seen over and over again the consequences of leaving it too late to take these things seriously.

You are eventually going to stop work and when you do, you’re going to need a financial nest egg that can be used to provide you with income for the rest of your life (Hint: the Age Pension is there as a backup… but it pays VERY little!). For some of you this might be a long way off, and for others it might be just around the

corner. The important thing here is to have some awareness so you can balance spending money today whilst saving money for tomorrow.

We want to stress at this point that saving for tomorrow does not mean living on baked beans now. Life is for living and there are so many things within your control that can make a huge difference to your future wealth without costing you a cent right now. That’s something we are passionate about in the Wages to Wealth program!

The reality is that most people retire with insufficient funds to replace their income. However, with a bit of planning and foresight, those same people could have totally transformed their retirement outcomes.

A very common question at this point is…

How much is enough?

This is a hard question to answer exactly and one that will likely change as the years pass you by. And no, the answer is NOT one million dollars as you may have heard getting thrown around. People used to have this notion that one million dollars was the yard stick as to how you were tracking and it would rarely become a reality for most people. We know retired couples comfortably living off nest eggs of a few hundred thousand dollars, and we know others who feel they can’t survive having accumulated several million dollars. It’s all relative to the kind of lifestyle you enjoy.

The good news is that this question is all about you! To help you on your way, here are a few broad questions to consider:

• How long do you envisage being retired for?
• How much money do you need to fund your lifestyle in retirement each year?
• Are you wanting to rely on the Government Age Pension?
• Do you wish to leave a financial legacy for your loved ones?

Your answers to these questions will go a long way to helping you determine your version of “how much is enough”.

We are all but certain that the key is putting the right building blocks in place as early as possible to give you the best chance possible of being able to maintain your lifestyle all the way through your life. Lots of things in your life will change along the journey, but one thing we can guarantee is that putting the right building blocks in place certainly isn’t going to do you any harm!

Below you can see a ruler... think of this as your lifespan. Now, just for a moment stop and think where you are on this ruler:

• How old are you?
• How many years have you already been working?
• When would you like to retire?
• How many years are there until you retire?
• How many years of retirement are you going to have to fund?

With these things in mind, how happy are you with where you are at from a

financial wealth perspective? We use this ruler because it helps to give you some perspective. You've been working for a number of years and you have a certain number of years left to come up with enough money to pay for decades of retirement (full time living). Don't let this scare you... use this as motivation to make the most of every dollar that passes through your hands from this point forward.

A number to aim for

While the exact number you will need will never be known in advance, it’s good to have something to aim for, so it will give you motivation and a plan of attack.

Introducing the rule of 25 – by far the simplest guide to how much is enough for those of you wanting true financial independence and not wanting to rely on Government benefits.

The rule of 25 estimates how much wealth you might need by multiplying your

desired annual income by 25. Now we could poke plenty of holes in this formula, but for Money in “Minutes” it needs to be short and sweet. Big picture, this is a great start to work out how you are tracking and what you might need (and you can likely work back from this number).

Let’s look at an example: if you are a single person wanting a lifestyle of $50,000 in retirement, you need $1,250,000 ($1.25 million dollars). That is $50,000 x 25. Have a think about how much you spend each year and multiply it by 25… there’s now a number to aim at.

For those wanting a bit more detail, this rule of thumb calculation assumes you'll be able to generate an annual real return of 4 percent per year (above inflation [estimated at 3%]). It therefore assumes long term annual investment returns of around 7% which, based on historical returns would appear reasonable (but there is no guarantee of course such returns happen in the future).

Our time here is up. If you’re already working through Wages to Wealth, in there we have an entire module focusing on your Net Worth and how much money is enough. Our goal here is to help you start planning so one day you can stop work and replace your employment income with passive income you want.

Remember, we are educated money nerds passionate about supporting your journey towards financial freedom. Shoot us an email anytime at

[email protected]. 

Cheers,

Dan and Dave