How to prepare yourself to live 120 years

Have you ever heard of 400 trillion dollars time bomb?

That’s how much money will lack by 2050 to finance needs of elderly people.

And that’s only for 8 largest established pension systems.

Life expectancy is increasing by three years per decade and those who born in 1990 could live 120 years.

But what kind of living would it be?

Pension systems don’t provide sufficient funding, and more and more retired people must work to survive.

Is there an alternative to working until death?

Further I am going to share with you an option that may be considered as life vest for our later years.

I’m talking about retirement capital.

What is the difference between retirement capital and retirement savings?

Retirement savings are supposed to be spent after retirement. 

However, no one knows how long he or she will actually live.

When you have retirement capital, you spend only surplus, while the main capital is preserved to generate surplus for next year.

Sounds good, doesn’t it?

Let’s look how big should this capital be to feed us as long as we live.

In other words, what is the amount of the retirement capital X to generate desired amount of annual spending x?

Let’s suppose we can safely place capital X and get r per cent after a year. 

This gives us that 

X*r = x

or

X = x/r 

In theory, still looks OK.

But when it comes to practice, big problem arises.

That’s because safe placement brings little money in present zero interest rate environment. Dead end.

Let’s look at the problem from another angle.

How much money can someone generate saving certain amount s every year and placing it safely at r per cent interest?

What we get after n years is:

After n years:

Year 1 savings become s*(1+r)^(n-1)

Year 2 savings become s*(1+r)^(n-2)

Year 3 savings become s*(1+r)^(n-3)

…

Year n savings will be s.

Capital Cn is a sum of all positions in the table:

Cn = [ s*(1-(1+r)^n) ] / r 

This formula allows us to answer the question:

-       How many years we need to create retirement capital X when r and s are fixed?

Let’s assume that a person earns annual income of I and he/she is able to make savings, i.e. income exceeds annual amount of spending, or I > x . 

Under these assumptions, let’s look how many years one needs to create retirement capital X  for different r and s:

 s =  0.1x (savings comprise ca. 10 per cent of income I)

It will take 83 years of investing at 3 percent per annum,

or 58 years of investing at 5 percent per annum,

or 32 years years of investing at 8 percent per annum,

or 26 years years of investing at 10 percent per annum,

or 22 years years of investing at 12 percent per annum.

It again looks like mission impossible for those who can sacrifice not more than 10 percent of annual income to create retirement capital.

What is necessary to make mission possible?

There are two ways:

1.     Higher savings.

E.g. saving 33 per cent of income for retirement reduces time that is needed for creation retirement capital to 25 years of investing at 5 percent per annum.

But, frankly speaking, how many of us can afford this level of spending?

or

2.     Maintaining savings at comfortable level, while placing them safely at a higher rate of return.

Starting planning for the retirement capital in the age 35-45, still can lead us to creation of retirement capital by the age of 60-70 if return is high and investments are safe.

Does this kind of investment, safe and highly profitable, exist?

Fortunately, the answer is ‘yes’.

We call them protected investments.

You can learn more about protected investments from my previous article.

For those who would like to explore protected investments practically, we announce that our company, Trendlines Support Pte. Ltd., is going to issue preferred stocks and bonds. 

All the funds we raise will be invested into protected instruments.

Please contact me to get personal invitation to participate in private placement.