How much does one need for retirement?

Posted by traineeinvestor 5 yrs ago
Well, it depends on your lifestyle .....

Actually, it depends on a lot of things and the blunt reality is that many of the factors which will impact your retirement calculations are either partially or completely outside your control (e.g. rate of inflation, tax rates, HKD/USD peg etc). Here's a summary of how I planned for my retirement:

1. I tracked expenses for several years and then made some decisions on what would change post retirement. We also identified items which we could cut if we ever needed to cut back.

2. I assumed our assets would have to last indefinitely (there isn't much difference between 50+ years and forever). This means that concepts like the 4% "rule" (not a rule at all and based on assumptions of a shorter retirement than I am planning for) would be irrelevant. It also means heightened sensitivity to sequence of return risk (i.e. it would be very dangerous to assume an average return when doing the calculations).

3. I assumed that we would continue to experience inflation rates higher than bank deposit rates and allocated our assets on the basis of (i) 2-3 years worth of expenses in cash/near cash to protect against short term volatility and (ii) the rest should in income producing assets which had at least some chance of offsetting inflation over the longer term (equities + real estate). There is no such thing as a risk free investment and, over the longer term, I have elected a preference for taking market/volatility risk rather than inflation risk.

4. I (a) worked out how much I would need to put in 3(ii) to cover 1 indefinitely assuming a net to me 3% rental/dividend income, (b) increased this by an arbitrary 20% and (c) added 3(i).

5. I decided not to make early repayments on any of our mortgages given the very low interest rates. This makes cash flow an issue for several years but should (in theory) produce a more secure longer term outcome.

Quite frankly, this is overkill and I probably worked for a year or two longer than I needed to but I felt more comfortable doing so than taking the risk that I might have to scramble for work in my sixties.

Good luck with your retirement planning.

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OffThePeak 5 yrs ago
It depends on your lifestyle...

You must have a better idea of what you spend than any of us do. And if you do not, I recommend you start tracking expenses.

I reckon I could live rather cheaply in Hong Kong, if I own my own flat with no debt. And that is one of the best hedges.

I recently sold my flat to buy one (for living) in the Philippines. And I bought three more besides to provide income, to cover general living expenses. The interesting thing is I could have held my HK flat debtfree, but had little income. By selling it, and buying a similar sized one in Makati. I have a nice flat to live in, PLUS income producing investments.

That leaves me with some "free capital" to take advantage of opportunities if and when they arrive. I do not want to have any debt, since I see that as the biggest thread for those who are in retirement

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OffThePeak 5 yrs ago
Much will depend on things like:

+ Where you want to live, and in what size flat?
(I have downsized into a small place far away from HK Central, so I can have the funds to explore living in other areas, and including cities outside HK)

+ What unavoidable expenses you may have? - like school fees

+ How extravagant will your dependents be? - If you "force" too much of a cutback on them, it may cost you a marriage, or put a strain on your family relationships

+ What "buffer" do you need for medical and other expenses?

(How can someone else possibly make these types of decisions for you?
My own feeling is that any expat family living on HK island, hasn't even begun to think about making serious cost savings. But maybe the bread-winners income is so high that there has been no need to do so.)

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traineeinvestor 5 yrs ago
OTP makes a good point about downsizing. We still have two school age children but at some point we can reduce costs and free up capital by either moving to a smaller apartment in Hong Kong or moving to a lower cost city (plenty to choose from).

Ditto making sure your other half is on the same page.

Also, retirement isn't about not working. It's about moving on to do other things.

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OffThePeak 5 yrs ago
It could be useful to see a planner, because there may be potential savings or costs that you have forgotten. But you will get more out of meeting one, if you have run the basic numbers yourself.

Some of these guys (or gals) are creative and will come up with fresh ideas. Others may just crank through a spreadsheet, I have been approached by some planners, but none of them could offer me much useful information on things I really want to know - such as can I create as satisfying a lifestyle in Philadelphia, the Philippines, Chiangmai, or some other city (that has dramatically cheaper housing prices than HK)?. They will not know that, since they do not know those alternative cities well (probably), and they do not know what I might want and desire as living arrangements in an alternative city.

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