$1 million sounds like a lot of money. Imagine what you could do if a stranger gifted you that much cash today. While it might be an enormous windfall right now, when you’re talking about the future and retirement, suddenly $1 million doesn’t seem like such a large sum. Proper planning is essential to a long and happy life. That’s why more and more Australians are coming to terms with the fact that $1 million may not support their lifestyle after retirement.
Saving for the Future is a Balancing Act
Saving for the future isn’t as simple as covering your living expenses. Sure, you may be able to live off of the earnings generated by your $1 million investment, but what about other things that need to be covered? Are there luxuries in life that you enjoy having, and hope to have until the day you die? Is that day still decades off? What about your children or loved ones? Do you plan to leave something behind to help them live a comfortable life?
When you start adding in these factors, that $1 million doesn’t stretch as far as it needs to. You must plan to save so you have enough for yourself and everything else. It’s quite a balancing act, but one that must be done or you could face financial hardships later on.
Your Dollars: Today vs. Tomorrow
The value of currency changes over the years. This is another factor that could influence your plans. If we estimate the rate of inflation at 3%, then that means your drawdown will also increase by 3% annually in order to maintain the same lifestyle with the higher cost of living. If you assume a return of 7%, then this trims that return down to 4%.
Saving for your Dream Retirement
You will need to pay for more than food, shelter, and clothing when you retire. Now is the time to answer some questions to help you determine the amount you will need for retirement. Your list of questions should include:
- What would you like your lifestyle to be like during your retirement years?
- Approximately how long will you need to sustain this lifestyle?
- How much money have you saved already?
- What return do you hope to get on your retirement investment?
- Do you plan to leave any funds behind for your children or other family members?
Once you have done the math based on the above questions, take a look at your current path and the amount you need to have when the time comes. Do you see a gap between the two? If so, then it’s time to make some changes and adjust your retirement saving plan. Contact Brian and the team at Bis Cosgrove to get expert advice that could protect your financial future.