$1 million is just not what it used to be. If you won $1 million in Lotto overnight, could you retire ? The short answer is yes, with a few big buts attached.
But if you factor in inflation at 2 per cent, you'd only actually be able to safely draw down about $40,000 each year. (no mention of the age you currently are).
Another expert chipped in ''a million bucks sounds like a lot of money, but it's not really.” He reckons $50,000 a year is pretty much the bare minimum you'd want to be getting by on.
But no mention of the fact that a couple age 65 or over get $28,000 of that $50,000 from the govt. - national superannuation.
The expert also adds to the gloom by saying “a lot of people underestimate the cost of retired life. 'When you start tallying it up, it's way more than you think - insurance, rates and repairs and maintenance continue, and new expenses arise such as hearing aids, glasses, and medical costs.”
He calculates a 30 year olds would need a lump sum closer to $1.5 million to maintain that basic $50,000 annual income for the rest of their life.
A typical 30 year old has a partner/spouse, student loan and a mortgage, so talk about the need to also save $1 million is likely to turn him or her right off saving.
And just to finally kill off any hope you have “you'd barely have enough money left over for a bus fare if you won a $1 million and bought an inner-city Auckland home right now.”
The comments concluded with “it's on with the shirt and tie, and back to the daily grind.”
Well someone is wrong
Most retired Kiwis don’t have $1 million invested, yet a lot of them seem to be enjoying retirement.
How come ?
To start with, the basic living costs for a couple over 65 are supplied by govt super of $28,000 pa nett.
A good starting point, although most of them need cashflow of another $10,000 to $30,000 pa
Where are they getting that from ?
They know there’s more than one way to get cashflow;
· Kiwisaver proceeds
· not worrying about savings being slowly eroded
· not worrying about savings being eroded since since they have a fall back position –a good property that they can downsize if money gets short
· savings and investments
· still working
· still working part time
· have a rental property
· have a sleep out rented out
· have a property that can be subdivided
· they might have downsized already to release more cash
· older people might be living in a granny flat on their children’s property with very low expenses
Yes of course you should save, BUT NO , you should not be put off by all these seemingly impossible figures
Any savings are better than no savings
Working longer seems to be good for men
Family working together
Sometimes the children progressively “buy” their parents house by making monthly payments to their parents – the parents get cash flow, and so they don’t need to sell their house.
And eventually the children inherit the house - a win win.
Money is serious
· It scares some people
· It worries too many
· It is the no 1 marriage wrecker
So let’s have constructive and informed debate.
Not the discouraging nonsense that we see all too often.
Supplied by Alan Clarke, financial & retirement adviser, & author. His second book is virtually complete, & he also writes regular articles for the media & on line – see www.acfs.co.nz