Modest vs Comfortable

For the first twenty minutes, all I could think was, “I’m being tested here…this is a gee-up for sure!”

But nup. They were serious. Didn’t flinch once.

Not long after Suncow was born, many lactations ago, I was sitting in front of a couple one Saturday morning at their home on the lower north shore of Sydney.

They’d been referred to me by a group of ‘get-rich-quick’ spruikers who’d been complaining about how hard it was to find a good adviser.

And I was about to find out why.

“We want to buy 10 houses in 10 years and be debt free by age 60 and retire on an income of $200,000 pa”, the wife said.

“Say again?”

“We want buy 10 houses in 10 years and be debt free by age 60 and retire on an income of $200,000 pa”, she demanded.

“Right. Got it!” (Kind of)

“And how are you going to do that because you’re 50 years of age with a whopping big mortgage hanging around your neck like an Albatross?”

“That’s why you’re here, to show us how. You’re the adviser!” she said with her lips pursed.

“O-kay. Tell me, do you have a budget?”

“What do you mean?” she said

“I mean do you know how much money comes in and how much goes out?”

“No.” she said bluntly.

At this point it reminded me of the time a mate pointed a slug gun at me when I was about ten years of age.

And all I could think was, “I hope you’re JOKING!”

But this couple wasn’t joking.

To be fair, I’ve seen quite a few people buy 10 properties in 10 years using cart loads of debt. So there’s nothing new here.

But this is what made my antennae shake…

Firstly, they constantly spoke in round numbers. 10 houses, 10 years, age 60, $200,000k.

Round numbers are cute, but they make me suspicious because…

Secondly, I know the important stuff hasn’t been thought through. In particular, I kept pressing this couple about why they thought they needed $200k pa to retire on.

And each time I got dead silence and more blank looks.

They honestly didn’t know, probably because they had no idea of how much it cost them to live. Most people don’t.

How Much Do I Need?
The good news is most people don’t need as much as they think.

A good rule of thumb is you’ll need two-thirds (67%) of your pre-retirement income (after-tax) to maintain the same standard of living in retirement.

To give you an idea, this table assumes you own your home and you’ve kissed the kids off by the time you retire!

ASFA estimates that the lump sum needed at retirement to support a comfortable lifestyle is $640,000 for a couple and $545,000 for a single person. This assumes a partial Age Pension.

ASFA estimates that a modest lifestyle, which covers the basics, is mostly met by the Age Pension. They estimate the lump sum needed to support a modest lifestyle for a single or couple is $70,000.

Approximately 92% of the population retire on some form of age pension. Only 8% are fully self-funded.

Most people do not need as much as they think.

And that’s not a gee-up.

Have a great weekend!

Adam