Financial analyses can be exciting for some, but paralyzing for many. I’ve seen this in discussions among friends, scattered through articles and blogs across the internet, and teased about on social media. Retirement planning, in particular, can be daunting. Most education does not teach any financial literacy or any long-term financial planning fundamentals – so it is rightfully intimidating!
At What Now Wealth we believe that imperfect action is better than perfect inaction. So, let’s get started with some very basic action right now. No prior preparation or financial analysis is needed for this exercise! We are going to start with some simple questions to get some basic retirement thinking started.
What is your annual income now?
Would you be comfortable with that same income during retirement? If not, how much more or how much less do you think you would like to make?
Congratulations – you’ve already done more retirement planning than most people!
Let’s keep going…
The goal for retirement isn’t to spend the money that you have… it is to make money on the money that you have. That is the key to a safe and sound retirement plan.
Typically, once we retire we’re making a conservative return on our money. Let’s use 3% for this example.
Example:
You currently make $100,000 per year. You decide that you would like to continue making $100,000 per year during retirement.
How much cash would you need to have in order to make $100,000 per year during retirement? If you’re making a 3% return, you would need roughly $3.3M in cash to generate that income.
The math here is simply: $100,000 / .03 = $3,333,333.33.
So, to use another example, if you want to make $250,000 annually during retirement we’d simply calculate $250,000 / .03 = $8,333,333.33
Let me guess… saving millions of dollars before retirement seems daunting? No worries! That’s literally why this blog was created… to teach you how to minimize this figure and still have the retirement of your dreams.
Let’s circle back to our first example: making $100,000 now with the goal of making $100,000 during retirement.
Let’s say you buy a property now that will make you $2,500 per month during retirement. This equates to $30,000 in annual income. Now, all of a sudden, instead of needing to save enough cash to generate $100,000 per year, you only need to save enough cash to generate $70,000 per year (since the other $30,000 is coming from rental income in this example). How much cash is that? Let’s use our formula: $70,000 / .03 = $2,333,333.33
That would shave $1,000,000 off of your savings goal to achieve the same $100,000 income during retirement. That minimizes your retirement savings goal by One. Million. Dollars.
Do you see the power of adding real estate into your retirement planning?
Of course there are variables to account for… How much cash do I need to buy a property? How much would it cost me to maintain a property? How long would it take me to pay off a property? How do I go about managing rental property? We’ll cover it all.
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