Planning for a quality lifestyle after retirement
How much money do you need to retire? The answer depends on the expectations you have for your lifestyle after retirement. Richard and Elizabeth have been working for nearly 20 years, and are recently thinking about the life they want after retirement.
A self-proclaimed audiophile, Richard adds new audio equipment to his collection every few years. He also enjoys going to concerts in his spare time, a hobby that takes up a chunk of his income. Elizabeth is an avid traveller and goes on several trips with Richard each year for shopping and dining. With an appreciation for the finer things in life, Elizabeth prefers staying in luxurious hotels. The couple's travel expenses exceed HK$100,000 each year.
To sustain their current lifestyle, Richard and Elizabeth have to set aside HK$40,000 each month to cover their expenses. The amount does not cover their mortgage repayments, which still has 16 years to go before it is fully paid off. If they wish to retire in 18 years, and assuming that they will have less work-related costs, they would still need about HK$50,000 for living each month. With an assumption that their current investments have an average annual return of 5%, year-on-year inflation rate is at 3.3%, and they have a retirement period of 25 years, the couple is still HK$11 million away from maintaining their current lifestyle with one to two trips per year after retirement. If they start establishing their savings plans and work hard at accumulating their wealth in the coming 18 years, they could handle their basic living costs after retirement. At the same time, they could plan their long-term investments to ensure an even better standard of living.
Everyone's retirement budgets are different. If you could reduce unnecessary expenses, like limiting the number of trips you take per year and choosing more affordable restaurants, then naturally your financial needs for retirement would also be reduced. Of course, how you want to live after retirement is entirely up to you. It is important for couples to have an understanding of each other's desires and prepare for their ideal retirement life together.
Special thanks to the case study provider: Financial expert: Simon Lee (Co-Director, International Business and Chinese Enterprise (IBCE) Senior Lecturer, School of Accountancy)
|Property Value:||HK$8.5 million|
|Remaining Mortgage Value:||HK$4 million|
|Combined Assets Value:||HK$2.3 million|
|Combined Savings:||HK$1.5 million|
To live out your ideal lifestyle after retirement, you will need: