If you are giving your retirement finances a work out to make sure your investments are performing, here are some tips about numbers you need to know.
How much do you spend?
This is the benchmark number you must nail down to give some idea of how much you will need to fund your lifestyle in retirement
Pick a number for inflation
Inflation is important because the rising cost of living eats into your spending power. Don’t confuse inflation with growth rates. For expats, the figure varies between countries – so work on where you will be in retirement not where you are now.
Most financial experts will settle for an annual inflation rate of 3%
How many years have you got at work?
Set a potential retirement date, even if you do not know when you will stop working for good. You need a date as a target to work towards
How much cash will you need to spend in retirement?
Think of this as the minimum you will need to spend plus some rainy day cash for emergencies and luxuries
How much money will you get in retirement?
Don’t forget not all expats are entitles to an index-linked UK State Pension, so check out what you will get in the place you retire to.
To receive the full amount you will also need 35 years of national insurance contributions
Don’t include income from investments – only guaranteed income
What’s the income gap?
It’s likely what goes out is more than what is coming in, so subtract one from the other to find the cash gap
How much savings or investments will you have at retirement?
To cover the income gap, multiply the answer of the question above, divide by four and multiply by 100, assuming your investments have to cover the income gap at a yield of 4%.
So, if the answer was £10,000, divide by four to give £2,500 and multiple by 100, which comes to an investment portfolio of £250,000 on retirement paying £10,000 a year at a yield of 4%.
How much are your investments worth today?
Include shares, cash savings, income from rental property and any other investments you intend to keep in retirement.
How much are you saving each year?
This should give you some idea of whether you are saving enough to build an investment portfolio large enough to cover your retirement income gap
Will your portfolio yield enough to cover the income gap?
If the yield comes to more than 4%, you need to revisit your plans as your savings goal is unrealistic by overestimating returns or underestimating how much you are saving
Is your portfolio diversified?
Think about derisking by picking some safe investments such as bonds as well as stocks and shares. If you have not diversified investments, you could face an irrecoverable loss between now and retirement.
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