How Much Is Enough To Retire Comfortably? (before it's too late)

You might well be wondering just how much is enough to retire comfortably and perhaps whether the advice you've been following might prove to be wrong. Because I believe that a lot of it is, and it could end up costing you the very thing that you've been working for your entire life. Now, the reason I know this is because I spent over 10 years in the trenches as a professional trader and I never followed any of that advice. I never even had an advisor, because I was able to develop my own method, my own blueprint for managing money there by 34 had enabled me to quit the rat race and end up living very comfortably indeed here in Asia. Now, if you're watching this, perhaps in the UK or the US or even Australia, then you won't need me to go on about the cost of living. UK inflation is one of those. It has risen to an eight month high. Inflation is starting the New Year on the rise, food prices are heading in the wrong direction and the Fed is not likely to cut rates again until inflation starts easing. So in other words, things are only getting more challenging year after year and in the case of inflation, month after month. Because whilst the worst of the double digit inflation that we saw a couple of years ago might be behind us now, you've got to remember that prices are still increasing from that massively higher base level, albeit just at lower rate. So we really can't rest on our laurels. Now, what I'm going to show you in this video is not only what exactly it costs nowadays to retire comfortably, and we'll go through some of the numbers from a study where I've sourced this, but also I'll be sharing with you the exact blueprint to know when and how you can afford to retire comfortably and get that. And this will be using the exact same process that has enabled me, as well as countless other people that I've helped, to scale my portfolio to seven figures and lock that in, I want you all to be able to leave this video with that knowledge. Because let me just cut to the chase. Rather than going through any more stuff, I want to jump right in. If you're someone who naturally is worried about the cost of living inflation, all the headlines around that, and who every time when you're checking your pension pot, it looks like nothing's happened, like just nothing is moving and retirement still seems like a bloody long way off, then I guess what you really want is a straight answer, so you can at least make a plan before you've run out of time and it's too late. And this is one of the things, as we go through these three scenarios at the end, that with an advisor, it seems impossible, given all the caveats and nonsense and jargon and all the rest. So I'm going to give you this in black and white, quite literally on this board. There might be some bad jokes in at the moment. I apologize for that in advance. And also just in terms of how clear this is, I'm aware that it's a really sunny day here in Bali. Oh, terrible. But it's meant that I haven't been able to film this outside. It's like 35 degrees and I'd just be horrible, sweaty mess after this. So we're doing it inside. I know the lighting is not fantastic, but bear with me because I promise you that by the end of this video, you will have gained all of the knowledge that you need to answer this question about what it costs to retire comfortably when you might be able to afford that, if you follow the methods that I'm about to lay out and explain to you the how. So, without further ado, and certainly without continuing to waste 20 grand a year on advisor or resorting to living off baked beans for the rest of your life, let's answer the first question. So what exactly does it cost to retire comfortably nowadays? So there's three tiers of retirement standards according to the PLSA minimum, which the state pension doesn't even cover, by the way. They're staying, I think, moderate or modest, and then the highest level, which they define explicitly as comfortable. So it's exactly what it says on the tin. Now, the most comfortable retirement for a single person costs £43,100 per year. And I'm going to go through exactly what that budget's for in a minute. But before you click away thinking that this is the answer, there's more to this. And as we move through the stages, it will become clearer how it's all one good knowing this, but you must understand the other bits of well, basically, when will you have enough to afford that? And how the hell are you going to ensure that you're able to grow your investments to that point so that this is taken care of? So £43,000 a year sounds like quite a lot of money, but when you look at what it affords, it's not exactly lavish, at least not in my definition. I know it's a personal thing, so we're talking about £100 a week per person on groceries, which you know is probably just about enough to cover you £40 a week. On eating out, which to be honest probably isn't going to buy more than perhaps lunch and a couple of coffees at best and then you would likely be running a three year old car. So we're not talking about buying a new car anymore but holding on to it for five years. So in other words you could be running a seven or eight year old car and obviously that's going to come with maintenance costs and everything else, which is one the factoring this into the budget now we'll cut to the chase and get through the rest. But one of the things that stood out for me here, if you're thinking that you're going to be able to spend your golden years as a comfortable retirement, traveling the world like I'm now doing then actually all this afford I think is two, maybe two or three weekend breaks domestically in the UK a year but just one two week holiday and specifically the say in the bed which is nice as you can see I was flexing my Italy tee here representing my European counterparts whilst here in Bali. So four star holiday, two weeks, 30 hours in the med each year. But we're not talking about global travel. So the last couple of things is like 1500 quid a year on clothes and shoes. Ladies that include shoes as well as clothes. Sorry, don't shoot me. I'm also Prasha, it's my thing. 1500 pounds a year on wardrobe. And this is also quite significant as the factored in the cost of renovation and home improvement which is something that DIY you tend to do when you've got a bit more time, particularly later in life. But replacing your kitchen and bathroom every 10 to 15 years. Now if you consider that the current life expectancy for a man is I believe 79 in the UK and for a woman I think it's 82.6 years. So we'll call it 83. State retirement age is currently 67 higher in the future. But if you are 10 to 15 years on top of that, you're basically at the life expectancy. So you might get to change your fiction bathroom once in retirement or maybe not at all. So to begin with that is what a comfortable retirement costs. According to the plsa these retirement living standards got a factor in. So it's a fair bit, 43 grand a year. Particularly considering how the state pension is still only 11 and a half thousand. So it's nowhere near Spa State Pension or state pension agent state pension nowhere near that. Now just one little caveat before we move on, they also estimate it for a Retired couple at being obviously highest as two of you, but you kind of get economies of scale so you can split some of the costs, but that's nearly 60 grand, 59,000. However, the benefit of that is that you'd have presumably 2 state pensions, so you'd have 23k before the rest that were about to be honest with it, it's a little bit easier if you are a couple, even though that number is a lot higher and it's 60 grand a year when you're no longer earning. So we've answered what does it cost? But now the question is when will you have enough to be able to cash in, retire with confidence? So we're going to be using something here known as the 4% rule. And this is by no means perfect, but like I said, I'm cutting out the jargon. I'm going to explain what this is, but keep it in black and white terms. I've made another video explaining some of the limitations of this particular rule and why. I think there are perhaps or potentially better strategies for figuring this out. But for the sake of this, I just want to keep things flowing and keep them in understandable terms. So what is the 4% rule? This helps us to determine, it's basically a multiple how many years worth of budget we will need before we can say goodbye and quit the rat race and, and cash in in your time. So if you think in terms of 1 over 0.04, which is 4%, you basically are operating and multiplying by 25. So we take our annual budget, we, which we expect to be 43,100 and multiplying that by 25 comes in a just short. Put it up here, see if it is now just short of £1.1 million. Million pounds. A stallion must stand quite shocking. £1.1 million. So this is in real terms, all the numbers that we'll work with here are adjusted for inflation, so the absolute number would be higher. And after inflation that's the real amount. You need over a million quid to comfortably retire according to these projections. Now, of course, none of this is individual or personal financial advice. I am qualified to operate as an advisor, but I chose to never turn a career in that direction despite having several opportunities to do so, because I believe in educating people and empowering people to do it for themselves for the reasons that we'll go on to a little bit later with advisors. It's, yeah, it's a very destructive and fee driven culture that I don't think ultimately delivers value for People. So one of the limitations of this 4% rule is that it assumes it. It was introduced thing back in the 60s and 70s so life expectancy was different. The retirement age was of course different. And nowadays a lot of people are opting or hoping to retire early or presumably live a bit longer. Right. Maybe I'll live the life expectancy. I take good care of my health generally speaking and you know, God willing I'd be, I'll be surprised if I don't push on beyond the average life expectancy if I continue to look after my health as I am able to do given the abundance here. So in other words, let's say they want to retire at 55 or 57. It's the current age. If you have a SIP in the UK, a self invested pension, well I'm going to send a Pfizer and you know, alternative, you might add 10 years to life expectancy. So if you do that we're going to have to add on 10 years worth of budget. Okay, so that obviously comes to four, which is that zero on the end, 431,000 more. So if you take 1.1 million, add the 430,000, looks like a million and 77,000. So it grounds nicely. Two in order to be on the safe side, one and a half million cowards. And obviously you can consider this in dollar terms, Aussie dollars, euros, whatever it may be. So how the hell are we going to do this? There's a study by legal in General, one of the biggest asset managers in the UK who of course are responsible for managing people's pensions as well. Just put this up here, lng and according to one of their studies, they based this on the typical investor, the typical person saving for retirement. So average earnings, average contribution, typical age for the type of client who's beginning to set up a solemn. Now just before I break these down, I want to tell you a story about a client of mine that I helped recently because he came to me basically hopeless. He said literally I've lost all hope of being able to retire. Certainly not retiring early and retiring comfortably because he was actually pretty aware of what his budget would be. He just had no idea how to get there. And in fact he was overwhelmed thinking that there was just no option and it's impossible now. He was already 50 years old, so I'm nearly 37, so a little bit older than me, but by no means too late. He felt as though it was too late before we started working together. No, now I showed him this and we went through Various scenarios at a Joma program where I helped him with this. And not only is he now on course to take the 300,000 pot that he had initially, and he felt you'd never be able to scale to these kind of levels, he's now on track to retire not only with that, but actually close to 2 million in real terms. So comfortable retirement assured and potentially a few hundred grand more to retire early, which you could do I think as early as 62 at current projections, with enough and maybe a little bit less delva for bit of a play fun. But rather than continuing to get fleeced by an advisor, I've actually saved him as we'll go on to in this scenario in a minute with these numbers, I've saved him nearly 20 grand a year in advisor fees. So he's in a very good place now. And the consistent theme, no matter who I'm working with, whether they're even like late 20s, but it's typically 30s, 40s, occasionally 50s, is that everybody wishes they just started sooner. Even I do. I, I started in my mid-20s in terms of putting together like engine and serious access and if I had access to the knowledge that I had to work so hard for to gain and people who helped me along the way gave me that opportunity that I might not otherwise have had. Because you're not taught about this in school. And I think the way that the system is designed, particularly with advisors, the financial advice industry that of course I'm familiar with from the past, is it's kind of like the clients of mushrooms idea. You keep them in the dark and you feed them shit so that you continue to extract fees out of them. So let's work through these assumptions and we'll apply them to each of these three different scenarios and that will answer how you get there in order to ensure a comfortable retirement costing that much with your two week full staff, hook day on the net every year. All right, so legal and general study, it's kind of the middle of the YouTube demographic, my demographic, 30 years old, I appreciate some of you might be a little bit older if you're watching this, maybe closer to the 50 year old client of mine that I helped. Just given the nature of this being focused on the cost of living and retirement. But you know, if you're a younger guy watching this or girl, then yeah, let's assume you're 30 years old by that point. According to legal and general, you should have the equivalent of one year's wages saved up and invested in your long term retirement. Now the average salary for a 30 something is 40 grand a year currently in the UK. Now along the way LNG suggests there was a rule of thumb similar to the fourth set rule. You should be looking to contribute half of your age in percentage terms from your paycheck each month. So 40 grand a year, 15% is £6,000 a year or in monthly terms £500 per month. So pretty realistic. Again, this is based on average numbers. Each of these scenarios will always be the most conservative estimate that we can work with. And I'm not doing anything racy here at all. It's so simple. Okay. Now 30 year olds due to state retirement age and chances are that they'll want to retire early ear and I can help them with that. Depending on which scenario they take, they've probably got 37 years ahead of them, which is a load of time. So this is what we'll be working through now we need to know what the stock market is likely to return. And this is based on a study by Harvard University called the rate of return on everything which was the most comprehensive study of all markets. Some asset class returns ever conducted. Their history somehow went back all the way to 1871 and it was published in 2019. It's a great read if you can kind I love it, but I'll spare you, I'll spare you that. And the TLDR is that we should expect as past performances no indicators of future returns. According to the disclaimers, the very definition of a mean is that return should auto correlate. So in other words revert to the tendency the mean in the long run. So who am I and who's a regulator or anybody else that matters to argue with a century plus long history. You'll be fooled by randomness if you to question that. And given that we're looking at retirements, we're going to go with the long term estimate. So 10.5% for stocks and 3.1% for inflation. That's what is averaged historically. Even if it was as high as like 11 or even 12% in 2022 going into 2023. So it's the CPI that's consumer price inflation. All right, so we're going to work with these assumptions and apply them to scenario A which is having an advisor manage your investments for you to try and get this and unlock that. The next scenario which I'll reveal a little bit later where you do it yourself and then the third scenario which, well, I won't spoil a secret just yet, it's how I Do it. So let's work our way through again. This is going to be the default position for most people. You've no doubt got friends who will probably have financial advisors if you don't already have them yourself. And because you haven't known another way growing up, you're probably going to revert to the convention. So this is how most people are going to. Well, we're trying to get there for the retirement so that they can afford this. But with advisors, you've got various fees that won't necessarily apply to the other scenarios. So, first of all, there is something called an ongoing advice fee. Now, these numbers are all taken from St James's Place, who are the biggest financial advisor in the UK. It was Google that pulled these numbers from their various documents from the website. So these are just indicative of what a typical advisor might charge you. So this ongoing advice, Steve, 0.5% a year is really to do your annual review by annual review. It's more like an opportunity to sell you something else because you might not have checked in with you for a year. It's under the guise of reviewing your performance, making sure that your objectives, your circumstances haven't changed in the past year. But really it's an opportunity to speak with you, to sit down and see whether they can sell you something new. More often than not, call me a cynic, but there's that feat. But then the funds or the underlying investments that they're going to put your money into, we'll also have a management fee, again, an annual management fee, calling AMC annual management charge. Now, this will range from sort of one and a half to 2%. So taking a conservative estimate in that midpoint of 1.75, so adding these together, of course, you get to 2.25% every single year. So that's going to have to come off the assumed return of 10.5%, less inflation. However, as we are dealing with advisors, this one being the equivalent of perhaps Manchester United, everybody knows somebody who's a fan of theirs or at least a supporter. They seem to get everywhere. Despite the fact that they're no longer the best team in the league, they're still the best known team in the league, having underperformed for years. They're kind of the company you love to hate. So anyway, working through these fees, there's also something called an initial advice fee. So this applies not only to when you first get an advisor, but when you may switch to a different advisor. You're going to incur this again. So you're going to incur at least once in your investing lifetime and maybe several times. There are also exit fees as well, but we won't assume that here. We'll assume a scenario where you do this once and then you would hold it over those 37 years. So we take our 40,000 from here, we subtract four and a half percent the initial fee, which means that rather than starting with 40 grand, we actually now have only 38,200 pounds to cloth Hound. Adding still 500 pounds a month, which is our 15% off our age in percentage terms, taking the 10.5% for the stock market, subtracting inflation and then subtracting 2.25 in fees, means that we're effectively earning at about eight and a quarter percent. So when you run the numbers, I'm going to make a bit more room here. What you will end up with under the scenario is a retirement pot worth £851,000, which as is immediately apparent, is well short of the one and a half million that we know should be aiming for as a minimum because, well, it's even short of the 1.1. That doesn't afford us early retirement or more years in retirement. It's not going to afford us a comfortable standard of living. And one of the reasons why this falls so far short, and this by the way, is assuming that the investments, the funds that put you in, actually deliver, or the market does, which again is a big assumption. It's because the fees over this horizon work out at £671,000. So all that's happening in this scenario is that you're making your advisor rich rather than achieving the goal of being able to retire comfortably. Naive O scenario being this is do it yourself at a cost of just 0.1%. That's right. Unlike an advisor, which charges every single year just to retain you, to give you an annual review, sell your stuff at 1.75% a year for what they invest you in and the initial fees. The annual fee with an ETF is typically going to be less than 0.1%. Now, what is an ETF? Let's put that up here. An ETF is an exchange traded fund and basically it tracks the market. So whatever the market returns, which over the long run should be 10 and a half percent, it has been historically, if it's a little bit more, a little bit less, or whatever it is, next year a market tracker will deliver exactly that, a cost of only 0.1%. In fact, in the case of one of the most popular ones, spy that's the short mnemonic. This one tracks the S P 500 index, the US stock market for the cost, I believe of just 0.07% per year. Okay, so basically nothing. So these ETFs can be bought and sold just like you would buy or sell shares in Apple for example. But what they are is a ready made portfolio, like an off the shelf solution. Right, so there's no customization here, so you're not picking stocks, but it'll buy little representative piece of each of the 500 companies, for example in the S P 500. And that's how it tracks it. It's basically replicating that portfolio or that index for you and you just buy and sell it in the same way as a share for this little price. So you eliminate nearly all of these fees under these assumptions, beginning with the full 40k because you don't have this initial fee of 4 and a half percent. Again adding 500 same assumptions per month less that fee, we'll call it 0.1%. Tiny, tiny fee, you would end up with a retirement pot worth just shy of, you guessed it, one and a half million pounds. So guys, we'd know what it costs to retire comfortably, how much we need to have saved up. And under these assumptions in terms of how we do it, we know that advisor is likely to see us fall short of that mainly due to fees before anything else. It's going to cost us about 20 grand a year to end up in this situation. Too late to do anything perhaps can be, well the end of your investing term when instead in a single click you could have bought an ETF which tracks the market under these assumptions after the tiny tiny fee, you will end up with now one and a half million pounds in real terms. Now of course you can just interchange that like I said, into dollars, euros, whatever it's going to be horses for courses, as I say. So isn't that amazing? Even if this is the only thing you take from this video, even if we don't end up at some future stage going on to work together, which of course you know, I hope we do, you're welcome to book a call with me via the link in the description that I'll leave. If you want to discuss any of this and what I'm about to go on to discuss now, just to put a bow on this and show you how I do it then at least you should be in this scenario. If you have an advisor, I would be having a serious conversation with them, a serious sit down that they're probably not expecting for their annual review that they're charging you half a percent for anyway. And I'd be pointing these questions to them, why not do this, particularly if they're not keeping up with the market. Now the third scenario Dwyer done with you. So just to wrap things up here, imagine if you could do even better than this. It might give you that flexibility to retire even sooner, even earlier, or have a standard of living which sees you I don't have a bigger budget, span of food on basics or likely a budget to go on holiday several times a year or maybe even travel the world for a year or two, maybe for the rest of your retirement if you had enough. Now I'm not going to create I'll turn this video into how much does it cost to travel the world forever? It's comfortable retirement. But just imagine what you could do with the additional sum that I've had to show you. So if this was like an off the shelf, a generic portfolio, the etf, this is a bespoke portfolio of high quality stocks. Now the reason why ETFs have become more popular in recent years is largely due to not having all of these things, but also because the big ETF providers, BlackRock, Vanguard, Fidelity, etc. Are these multi billion dollar corporations who frankly have the loudest voice because they have the biggest marketing budgets in the industry. So having transitioned their businesses away from having to try and beat the stock market for their clients to earn their fees. So they've just provided ETFs which is kind of like a, a mass or high volume business, a mass offering where you do you have a small, a tiny, tiny slice of a much bigger pie, they're able to do this without the risk of having to try and beat the market. For the clients, it's a free lunch filling and hence they're talking down the value of stock picking and building your own portfolio to say ah, there's no point trying ah, it's complicated. All of these many they just talk up their book of passive investing, buying ETFs. So let's just put that to one side and conclude things here using again the same assumptions, this time without even that fee. Because holding stocks there's no fee. If in case there's like a, a custody charge or an inactivity fee that some brokers may charge, leave them, go to another one. It's like if your bank charges you to have a current account to give them your money, it's nonsense and my broker certainly does not do that. The value that my model has added over the years and this is backed up, validated by not only backtesting but also research as well. Academic research which shows this outperformance to be consistent over many, many decades is 2.1%. So it's the market plus 2.1% per year on average. Now, unless, or rather if we hadn't already determined that compounding even 0.5% of a 37 years add up to a huge sum, then 2% might not sound like a lot. Particularly if, you know, you're one of the youngsters that's been doing crypto and stuff recently, which by the way, you should definitely stay clear of in my view. Then. Yeah, let's work through these numbers. Let's work through these numbers. It's getting hot in here still. It's a hot old day. So we can add this 2.1% over the market. 10 and a half, which we know less inflation, 3.1. There's no fees to deduct because we're dealing with stocks purely. And when you compound this over the 37 years, same assumptions, what you should end up with is more like that 2.7 million. That's the difference that 2% makes. It could add as much as 1.2 million in real terms over the budget that you need and you would have locked in to ensure a comfortable retirement. So I'm actually going to put this number up at the top here in place of LNG up here, 2.7 million. In fact, we're putting nice big numbers because that is a big number. Like I say, not only does it take care of all of that, ensures all of that, it gives you a budget of over a million quid to play with. But whether I'm in a rent, whether that, I don't know, buying your dream car or your dream house in the countryside or bringing a second home abroad with time, summer home or like in years gone by. You know, my own vice is watches. Still, I don't have a car out here, I don't need one out in, in this part of the world. But for me, I do like a nice watch. And once I had a big collection before, you know, broke free of that hedonic treadmill and that lifestyle of what basically be the waste sort of back in the city, realize that you don't really need a lot less stuff anymore, but the one little luxury that I have that every time I look at this watch, whether it's just before, I don't know, checking the time when it's before client call or whatever it reminds my time is precious. I know it's a cliche, and it also tracks dual time zones, which is helpful when we're royal. But whatever it means to you, whatever you could do with that additional money, whether it's material or whether it's the really deep stuff, the personal stuff, like ensuring that your loved ones are taken care of, maybe your legacy in terms of your kids or maybe even grandkids, they. They don't have to worry about money. What I plan to do when I have family of my own, is to have this set up in a trust so that the kids, my family, don't necessarily know they're there, but the trustees will be able to take care of them should there ever be any problems, which, at this rate, hopefully there never will be. So whatever money like this means to you, above and beyond securing a comfortable retirement, which I've laid out here, whatever that means to you, then I hope you've taken a lot of value from this video. And if you would like to discuss more of this with me, book a call and, yeah, let's lock it in. So if you enjoyed this, check out the next video, which YouTube thinks you'll enjoy. I'll see you all then. Take it easy.