What's your number?

Over the years, I have heard many people saying “I will retire when I have a net worth of X”.?

Of course, the amount (X) has been different for each individual, but several people do have such targets in their minds.

I often wondered if there were any underlying calculations in the derivation of this amount (X) or people made such statements based entirely on what they believed to be a ‘high enough’ amount in the current scenario??

If the amount (X) has been a ‘guesstimate’, my only hope is that it turns out to be sufficient for them, considering that many might be unaware of the several risks they may face in the future, which may make this amount (X) insufficient –

1. Longevity – We are now living longer than our previous generations did, thanks to the advancement in medical sciences.?People retiring today typically have 15-20-25 years of retirement life ahead of them and there is a risk that the net worth at retirement (X) may turn out to be insufficient to sustain for such a long period.
2. High inflation –The price inflation in the future would erode the purchasing power of the retirement kitty.?Given this, what seems ‘high enough’ in the current scenario may actually turn out to be insufficient in the future.?People may also under-estimate the medical expenses in old age.?Surely, we are living longer, but we may not necessarily be living healthier – and medical costs are increasing at a rapid pace.??
3. Incorrect investment strategy – Many don’t invest their monies appropriately – both before retirement and after retirement.?This runs the risk of facing several issues such as–

• Low / negative real returns – i.e. your assets generate returns that don’t even beat the inflation at which the future expenses would increase – again, leading to an erosion in the purchasing power of the retirement kitties; and / or
• Liquidity issues - i.e. not having assets that can be easily sold off, if necessary, to meet the outgoes; or having to draw down on investments at a time when their market values are depressed.

So, answering the question - what’s the right amount (X) - is not an easy one! No wonder, therefore, this target amount (X) keeps increasing.?Perhaps that’s the reason that many of us continue to work until normal retirement age (say 60) or even beyond, for as long as we can.?

However, some may continue working unnecessarily, often against their own will. There are several reasons why people continue to work for as long as they can.?These are –

1. Some simply enjoy working – For some, work is life / enjoyment.?Even if they have sufficient financial resources, they would still continue to work – not necessarily to create additional wealth for themselves, but because they enjoy working and wouldn’t want to give that up even in their old age.?This would be a perfectly valid reason for people to continue working – as it gives them joy.
2. Insufficient financial resources – Unfortunately, some people do not have sufficient financial resources to take care of themselves and their families. They have no choice but to continue to work for as long as they can.?This typically includes the daily wage earners.?But this may also include a vast majority of white-collar employees.?Perhaps, a sound financial planning advice might help such people to a certain extent – may it be with their expenditure management or streamlining their investments etc.
3. Fear of insufficient financial resources – However, many a times, people do not know with any degree of certainty if the amount of target net worth at retirement (X) they thought to be sufficient would actually be sufficient.?What if circumstances change and the amount (X) turns out to be insufficient??This fear is valid and justified although such risks exist with any such amount (2X, 3X, 4X….) – there can never be an absolute guarantee about the unknown future anyway.

• Should we then continue to work, at times against our will, only out of fear of not having sufficient financial resources?
• Should we continue to work, not just for ourselves, but for our next generation – only to pass on our estate to them upon our eventual demise?
• Should we not be pursuing other interests that we may have but couldn’t devote time for the same early on in our careers – any hobbies, travel, learning something new, social service etc.??

?I hope people in categories (2) and (3) above have access to the necessary tools and advice, so that they are able to retire at an appropriate stage of their lives, having achieved their target net worth (X) that would be sufficient to sustain their lifestyle into retirement.

Do you know what your number (X) is?or what it should be? You may be able to validate your thoughts by logging into your Fin4sight? account at www.wisdom2wealth.co.in.?