How Much to Retire?

It has to be said that I’m not a great fan of Twitter (or Facebook and the others), but I’m told it’s because I’m a Grumpy Old Man who doesn’t understand social networking.  I don’t think that’s strictly true.  I think it’s more that I have no interest in knowing that Alice has a hangover or that John’s cat just caught a mouse.

However, there are occasional snippets of valuable information and Retirementdosh recently posted a good example.  They said that in order to have £1 million pounds in 20 years time you would need to save £3,962 per month.  That struck me as being a huge amount that is well beyond the scope of most people.  There can’t be many 40 year olds planning on retiring at 60 that can afford to put away the best part of £4,000 per month – I dare say most people of that age don’t earn four grand a month.  So I thought I’d look into it in a bit more detail.

It turns out that this is all to do with real bottom line return on investments and the unreal expectations that we tend to have.  Most of us think that we should be getting a 5% or 6% return on our investments.  Except, that is, for a professor at the London Business School by the name of Elroy Dimson (honest).  He, according to Money Week, is an expert on market returns and reckons that the net-net-net return is only a half of one percent.  He’s obviously allowed for all the costs involved in investing; bid-offer spreads, income tax, capital gains tax, stamp duty, inflation and the fact that we don’t put all our savings into stocks and shares anyway.

If he’s right, and logic suggests that he is, the vast majority of people are going to have a fairly bleak retirement.  Especially so when you consider that today’s 40 year old is going to live a lot longer than today’s Grumpy Old Men.

You’re going to need more income when you officially retire and you need to start thinking about it now.  Check out the web site for some ideas: http://bit.ly/apWC4h.