Investing For Retirement...
How Much Do You Really Need?

When it comes to investing for retirement there are several questions you need to ask:

  • How much do I need to retire?
  • How many years can I expect to live?
  • What kind of life style will I have in retirement?
  • What can I do if I haven't saved enough?

Your Life Expectancy.

To understand what an amazing change occurred in the late 20th century, just consider these statistics on life expectancy:

  • Classical Greek and Roman times... 28 years.
  • Medieval Britain... 30 years.
  • England 1600s... 35 years (2/3rds of all children die before age 4).
  • Colonial America Virginia colony... less than 25 years.
  • Early 1900s...30-45 years.
  • Current world average... 67 years.
  • Current world best Japan... 86 years for women (78 for men).
  • Current world worst countries...Afghanistan, Zimbabwe 43 years...Swaziland (Africa) 39.6 years.

Thanks to medical advances and improvements in lifestyle today's 60 year old baby boomers can expect to live another 25 years.

So How Much Do You Need To Retire?


You'll only need 65-80% of your pre-retirement income. You won't have work related expenses or Social Security taxes.

Licensed advisors and major funds can access sophisticated computer-generated financial models that use historical data on inflation, equity and bond returns, market conditions, actuarial statistics on risk, etc to come up with such a figure for those investing for retirement.

But there are several simple "rule of thumb" formulae that are easy to understand and allow you to come up with a "ball park" figure yourself:

1. The 4-Percent-Drawdown Rule.

This rule was published in 1994 by certified financial planner William Bengen who had researched actual retirement scenarios and equity returns over the past 75 years.

Bengen concluded that retirees who draw down no more than 4% of their Retirement "Nest Egg" each year (adjusted for inflation) have around a 90% chance their money will last around 30 years. He also suggested a regularly re-balanced split between equities (50-75%) and bonds to ride out market ups and downs.

Even so, there is still a 10% chance you'll outlive your money depending on your investment decisions and market extremes.


The key to retirement survival is not to suffer any huge losses in the first 10 years.

And in prolonged, severe bear markets (like the Great Depression) these assumptions may not stack up. Many people who retired in early 2000 and were heavily invested in stocks were punished in a long slide that saw their retirement nest eggs halved.

2. The 10 Times Your Salary Rule.

Saving 10 times your income by age 65 should allow you to live on around 70 percent of your pre-retirement income. While saving 12 times your income should provide you with about 80 percent of your pre-retirement income.

3. The Multiply X 25 Rule.

This rule is simply a mathematical equation and tells an investor what amount of savings are needed to generate a specific income stream. Just work out how much income you need each year and multiply X 25.

This implies that if you need $40,000 to live on then you need savings of roughly around $1 million (assuming you don't receive any other Social Security benefits or pension) and your house is paid for.

Problem is... most retirees won't have anything like $1,000,000. The reality is many won't even have half that amount.

Instead they'll be desperately trying to achieve higher returns (of 5-10% or better) on their savings, and may be tempted to take more risks to get them. Ultimately their kids may not end up with the inheritance they were hoping for either.


Retirement planning is the art of matching future income with expenses.

Furthermore, they'll still need to reassess their investment outcomes each year (taking into account the inflation rate, interest rate movements, changes in equity and real estate prices, etc). Then, depending on whether they had unexpected costs (like medical expenses) or achieved better-than-average-returns they may have to revise their drawdowns up or down.

Investing for retirement...Retirement Lost; the pension crisis.

Investing for retirement Rule No.1...Start Early.

Investing for retirement...Where To Find Help?

What To Do If You Haven't Saved Enough?

  • Think about delaying your retirement. Every year you do makes a big difference.
  • Work part-time after you retire. If you're a teacher you can help out as a relief teacher. Use your experience and unique skills and become a consultant. Find a job in retail (e.g. Walmart greeter) or telemarketing.
  • Start your own online internet business. Some entrepreneurs sell their own products (e.g. buy products cheap at garage sales then re-sell them on e-bay); or promote other people's products (affiliate marketing).
  • Take the Costa Rica option and move to a cheaper location. But do your due diligence first and make sure it's the right option for you... once you relocate you may not be able to afford to move back if things don't work out.
  • Consider a Reverse Mortgage to release the equity in your house.
  • Pray a relative leaves you an inheritance.
  • Re-assess your spending and life-style expectations.
  • Turn a craft or hobby (e.g. bird breeding, gem fossicking) into a source of income.
  • Try freelance writing or photography on your home internet or start up your own web site.
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