The subject of retirement often brings to mind images of spending quality time with grandchildren, lazy days on the links, exotic holidays and so on. However, it has often been said that a true definition of retirement, from a financial point of view, is “when you stop saving from your earnings and start earning from your savings” . This should not come as a surprise to all of us but to many, retirement is a sensitive subject, especially for high-ranking government officers to captains of industry and top brass in the armed forces. After having been at your desk (or should I say, position of power) for 40-50 years and one day the party has to end, it's quite hard on a lot of people. Not from the stand point of saying goodbye to colleagues and friends but saying goodbye to the “gravy train” is the hardest part! The perks are no longer there; no more subordinates to carry your briefcase, no more secretary to sharpen your pencils (or sit on your laps, depending on what kind of a boss you are!). The chauffer driven limousine will be gone too, or at least you have to pay for it yourself. Get the picture? Everything that one takes for granted i.e. entertainment expenses, car allowances, green fees, group life and health insurances or even subsidized company loans will now come out of your “personal” pocket rather than being paid for by the employers. Several personal finance books including the opinions of many experts in this field, have mentioned that after retirement, one only needs about 70% of last salary to maintain the lifestyle that one is accustomed to. This figure sounds about right to me but then again it may vary between different people. That's why when it comes to building retirement nest eggs, having more stashed away is always better than not having enough.

In addition to figuring how much to live on after retirement, longevity is another touchy subject for retirees or soon-to-retire people. In a Thai culture or any other cultures for that matter, the questions “When will you die?” or “How long will you live?” are not exactly everyday topics of conversation. But when it comes to retirement planning, this is the issue that one must come to grip with in order to come up with a realistic plan. The fact that Thai people are living longer than ever before seems to cause widespread anxiety. According to the latest statistics, if you retire at the age of 65, there is a good chance that your retirement savings will have to support you for another 20-25 years. (Yes that's right, 25 years is equivalent to 1/4 of a century!). To make things worse, with modest inflation of 3%, your cost of living will double in every 24 years. Having put all these facts together, the notion “living off 70% of your last salary for the rest of your life” is beginning to look seriously inadequate. If your income doesn't keep up with inflation, you will have a continuously eroding lifestyle. Depressing? Yes. Inevitable? Hardly. In this issue of M&W, we will show you, in a 3 parts series, how to retire rich or at least in comfort. In a nutshell, retirement planning comprises of 5 main steps:

How long will you live?

Let's first deal with the issue of how many years you need to make your savings last after retirement. Everyday, it seems, we read about another biological breakthrough that just might extend our lifespan by a couple more years from stem cells research to human cloning and human growth hormone. At some point in the not too distant future, it is quite possible for people with enough exercise and vice restraint to live to 100. Although, today's science can not pinpoint exactly how long we are going to live but here are some interesting set of statistics which seem to indicate that we are living longer:

Based on the above statistics, it would be safe to say that we can aim to live to about 85-90 years of age but for a more personal estimate, check out the questionnaire at www.livingto100.com

What will inflation be?

Even if you get everything right from investing early and wisely in tax efficient vehicles such as registered provident funds and retirement mutual funds (RMF), but your retirement savings can not escape the forces beyond your control – namely inflation, which can take a big bite out of your hard-earned savings every year. With inflation running below 3% at the moment, it would seem silly to lose sleep over trivial statistics. However, I must remind you that we are living in an unusually time with interest rates at 40-year low and it would be foolish to assume that things will not change in the next 40 years. Most economists seem to agree that an annual inflation between 3-5% over the next 10 years is not beyond reasonable expectation.

How long will your retirement saving last?

Assuming that you have a Baht 4 million retirement saving fund and you make a Baht 400,000 withdraw each year. The money is being invested with an annual return of 10% pa. How long your saving will last, really depends on the rate of inflation.