How long Can You Afford to Live?

May 22, 2012 3:46 pm

Over the past 12 years or so, almost every time we meet new clients I have asked them about how much income each year (in today’s $’s) they would like to live on in retirement. In the majority of cases they have not known the answer or even thought about the question before (before becoming an adviser, I would have been in the same boat!). Speaking of boats, how many of us would set out to sea not knowing where we were heading, nor knowing what we would need to have in place to maximise the probability of making a safe arrival at our destination.

Arriving at ones destination is only part of the story – you have to find the balance between enjoying the journey (achieving your financial and lifestyle goals) and being able to have enough spending money once you arrive at your destination (retirement). Further to this, what would happen of you decided to stay at your holiday destination for the rest of your days? Would you have enough income to last your lifetime?
Living beyond one’s money (longevity risk) is a problem many people will face, particularly when medical advances are helping us live longer. How on earth do people think they can work for 35-40 years and expect to fund their 35-40 year retirement? If you are not willing to make some sacrifices while you are earning your full income you will certainly have to make significant sacrifices the longer you live in retirement.

I ran a marathon a couple of years ago. I see so many parallels between what I faced and preparing for retirement. To start with, I started my preparation from a very unfit state. If I had to run my marathon the following weekend, I would not have not made it past the first few kilometres! Even before that, many years went past when I said I was going to run a marathon next year and I did not end up running one. It wasn’t until I followed a plan and became accountable to a program I was following and to all the people I told, that I started making progress toward my goal. Some of the biggest tests were the cold and wet winter nights, where I had to head out of our warm house at all hours of the night. The Nike slogan “Just Do It!” became my mantra. Thirteen months later I ran a marathon in 4:21:29. It is still one of the most satisfying achievements of my life!

Funding our retirement is a marathon we all face. Like me, many of us would be totally unprepared for it if we wanted to retire tomorrow. The fact is more than 95% of us will not be able to adequately fund our retirement and will be dependent on someone else to maintain a basic standard of living. I dare say many will look back on their earning years and regret the fact that they did not prepare for their retirement marathon earlier. I do not want to be in that position and I do not want any of my clients to be there either.

Start your preparation today! Get a plan and strategy and follow it – become accountable to people. Success comes from doing a little bit over a long period of time. My marathon preparation began with three 15 minute walks with a little running, three times in the first week, in the end I reached my goal.

What will be the next step in your financial marathon?

Please do not read this and not take action. Find out where you are in relation to where you need to be. If you are on track, well done and keep it up! If you find out you are not on track, you will not be the Lone Ranger. Take the next step and seek sound financial advice and someone who will help you each step of the way on your journey to financial independence.