What is an appropriate Retirement Expenditure Multiple?
Some suggest a retirement expenditure multiple as low as 12 …
When clients ask us how much wealth they need to accumulate to ensure a high chance of meeting their retirement income needs, we suggest that a figure of 25 times their desired retirement expenditure is a good rough guide i.e. a retirement expenditure multiple (or “REM”) of 25. So, if you would like to be able to spend $150,000 p.a. in retirement in today’s dollars for an indefinite period, the multiple suggests investment wealth (i.e. excluding your residence and other lifestyle assets) of about $3.75 million is required.
Financial Independence: a worthwhile financial planning objective?
Clearly, financial independence isn’t important for everyone
“Financial independence” is achieved when you have sufficient net investment wealth to support your desired lifestyle indefinitely, without the need for earned income i.e. work is a choice, rather than a necessity. We have always regarded the achievement of financial independence as a financial planning objective that most would embrace.
However, separate conversations that I had last week with three mid-late fifty year old professionals (who aren’t currently Wealth Foundations’ clients) really made me think that perhaps we, and our clients, were living in an alternative universe. The three admitted that within the past six months they had each borrowed between one and two million dollars either to renovate their existing residence or partly finance the purchase of a new residence.
And, apparently, they felt reasonably comfortable doing so. Either their accountant and/or financial planner had assured them that they could service the debt. Or they took solace from the fact that many colleagues around their age were borrowing similar amounts for similar reasons.
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Measuring your current asset allocation
You need to know your current asset allocation
In our last article, “Choosing your target asset allocation”, we discussed the key determinants of the choice of your target asset allocation. But in developing an investment strategy designed to reach your target by retirement it is essential to have a meaningful measure of your current asset allocation.
For those who expect to continue to accumulate wealth from business or employment earnings, the traditional ways of measuring asset allocation are not very helpful. A better approach to asset allocation takes advantage of our “Projected Lifetime Investment Wealth” framework. It takes a much broader view of wealth and provides valuable insights relevant to answering many typical personal finance questions e.g. how much could or should I borrow, how should I build my risky growth asset exposure over time, can I afford a larger home.
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