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The Real Cost of Retirement

by Ross Greenwood

One of the things that frustrates me most is people who say: “If only I had enough money, I would retire on the spot.

“And do what?” I normally reply.

There’s a reason ageing rock-bands like The Rolling Stones, The Eagles and Fleetwood Mac (in all their various incarnations) keep on playing. Some of the members might need the money (two or three marriages can do that to you) but mainly it’s because: what else would they do?

Many people, when they are still working, barely give a thought to what it’s like not to work. Their only experience is vacations. But not working, for most, is not like a perpetual holiday. That falls away quickly. And as for pastimes, such as golf … believe me I like golf as much as anyone … but play five times a week for a few weeks on end, and it too will start to feel like work.

Which creates a few thoughts. First, if you are seriously considering retirement, you had better have a really good plan about what you are going to do. Map it out and see if it will really take up all your spare time.

The next thing is the mental agility and sense of purpose you achieve through work. Gerry Harvey once told me that his idea of a nightmare was spending a night out with all his “retired” mates. His view was that once retired, many peoples’ thinking stops. Their time references, and stories, relate to the time they were employed. This is another reason to make sure you have set chores or goals to achieve if you give up your current job.

A final thing is money. I know for many; money is not the be-all-and-end-all. But having the ability to pay bills without thinking about whether you can afford them is a luxury that not every person enjoys. And working people have cash flow, and if they budget properly, don’t have those “do I have enough?” moments.

These days – as I have discussed here before – it’s hard to get a safe return, that is also sufficient for most people to live off. That’s because interest rates are so low. The problem here is that once you stop work, you will most likely start to dip into your capital … which long term adds to the pressure of retirement. Some, of course, will have more than plenty … and will live off dividend or rental income from their share or property portfolios.

But come back to that job you can’t wait to get out of for a moment. Do me a favour and multiply whatever you are earning by 50. Got that? Multiply your income by 50.

If you are earning $100,000 a year … 50 times that is $5 million. The reason we multiply by 50 is because it is the equivalent of earning 2% in a bank account. In other words, to generate $100,000 pre-tax per year, you will need $5 million in a bank account paying 2% to achieve it.

Now you can put whatever rate you like on your investment return – if you think you can consistently earn more. But this simple sum gives you an idea of what your job is actually worth to you. 

So, if your job is worth the equivalent of a $5 million asset (say a house) can you imagine giving it away that easily if you owned the investment? The answer is: “Of course not” even though people fritter away their employment every week for a host of reasons, sometimes trivial.

There are too many people who are forcibly thrown out of their jobs – who would desperately like to work – for others to give it up on a whim.

You see, work is good … no matter what age. And you can put a value on it *and a cost on retirement

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