How much is enough?

How much income you will need in retirement may well be THE most important queation you should ask yourself when considering your finacial future. We find that our clinets initially have a vey hard time projecting this into the future, or even working out their current expenditure.

Most people don’t have a good idea of what expenses they will incur in retirement until they actually get there, so using a standardised measurement, such as the ASFA Retirement Standard, as a guide can help clients to plan properly.

The ASFA study considers how much is needed to fund a “modest” and a “comfortable” retirement income and is updated each quarter. Figures released for the December 2010 quarter show the following income requirements.

Modest retirement for a single: $21,218
Comfortable retirement for a single: $39,393

Modest Retirement for a single: $30,708
Comfortable retirment for a couple: $53,879

Even at the comfortable level this does not represent a lavish lifestyle. For example, a “comfortable” retirement income for a couple only includes $187.14 for food and $303.28 for leisure in their weekly budget. This means careful budgeting and expenditure management is still required.

These figures also assume the person owns their own home. Higher income is needed for those renting or still paying off debt. Thesae figures also are in today's dollars, and don't take into consideration inflation. So, if you were 40 (a good age in my book), a comfortable retirement for a couple would require nearly twice as much, or close to $110,000 per annum, by the time you get to 65, assuming prices growth of only 3% per annum.

Finally, then you need to work out the lump sum required to pay this income for life.

You can see why starting as earlier as possible, even if you don't think you are 'rich enough' to plan for the future, is so important.

We welcome any comments.

Price versus Value

Whenever we price a purchase of any kind, we make a decision about its relative value. Then we buy or don’t buy at that price.

The reasons behind that decision will either be the direct value of that item e.g. a heater that will warm us in this cold weather; or the indirect value of the purchase e.g. keeping up with the neighbour's giant plasma TV (even if that purchase ends up being useful, it was driven more by ego value).

The ‘fairness’ of the price is a reflection of that value.

When considering the ‘price’ of insurance solutions that we propose to our client's, we aim to ensure that we draw their attention to a clear relative value of the purchase.

We now run a well-structured package of products that should pretty much replace the family’s current income in most circumstances. So if the total premium for that package is say, 4% of your current household income, would that not be seen as value?

Further, while we often hear people say they 'can not afford' insurance, we ask ourselves, how they would meet their living needs if they weren't receiving an income?
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