How much do I need for retirement?


Well, this is a question everyone ask when they start planning for their retirement. Instead of calling it a retirement, I would prefer to rephrase it to financial freedom. This is the point where you know you have accumulated enough for you to live your lifestyle for the rest of your life. Retirement or financial freedom doesn’t mean that you need to stop working, it just means that you do not need to work for money, you can do what you want to do, when you want.  

So How much do you need? There is no one perfect answer for everyone. Everyone’s requirements are different. You may plan to retire earlier or later, expect to spend more or less in retirement, how long you want to plan your retirement. All these factors counts.

In this article, we’ve created simplified tables to help you estimates how much you need to accumulate in order to retire with your desired lifestyle. This table has built in some assumptions for the sake of simplicity. We have assumed that our inflation rate is 4% and your withdrawal also increase at the same rate of inflation, we also assume that you invest your retirement fund in an investment portfolio that generate 5% annual rate of return throughout your retirement. So, if you think that your personal inflation is more than 4%, or, if you only want to keep your money in savings or FDs, which generate only 3% return, then the amount that you need may be higher. Vice versa.

Let’s start the calculation by answering the below questions:

“How you want to live in your retirement? How much money you need a year to support your desired lifestyle based on today’s price?”. Only calculate the expenses you (and your spouse) need during retirement. Exclude your loan repayment, the fund to raise and educate your children. You should have done with these obligations or already have separate funds dedicated for these purposes.  

“When you plan to retire? How many years more from today?” Refer to the table below to get the inflation factor and multiply it with the desired annual expenses that you workout just now.

For example: If you need RM100k to live your desired lifestyle, you are 40 now and plan to retire at age 55, you still have 15 years to retire, refer to the table below, the inflation factor is 1.8, you need to spend RM180k when you retired 15 years later for the RM100k lifestyle today.
Inflation Factor Table (Assumption: 4% annual inflation)

Then, decide how long you want to plan your retirement? We encourage you to plan at least up to age 85. You should always plan for longer term says up to 90 years old or even 100 years old. It is always good to have more buffer.

Example: if you need RM180k a year for your lifestyle when you retire, and you want to plan till age 85. From 55 to 85 years old, you are going to spend 30 years in retirement. Refer to the table below, you’ll need somewhere around RM4.5 million – 5 million to be able to retire.    
Retirement Amount Table

Now, you know how much you need to have your dream retirement. If you are already on your way to your target, congratulation! But if your number seems dauntingly large, don’t let it scare you away from retirement planning or use it as an excuse to do nothing. In fact, this gives you a baseline to work on. Start talking to your financial adviser for personalised evaluation. And how are we going to get there is another piece of the puzzle. There are ways like saving more, invest more, reduced spending or working longer. A licensed financial adviser can provide proper planning and create a personalised strategy to achieve it. The key is to start taking action.

*This is a basic model and it has built in assumptions for the sake of simplicity, your situation may not match those assumptions. Consult your financial adviser for a personalised retirement plan.