The frightening cost of retirement
The frightening reality for many people who are more than mid-way through their productive working life is that when they do a few simple sums they find they almost cannot afford to retire, even 20 years down the track.
So, how much does the ‘average’ person need to have available to them to live a reasonably comfortable lifestyle when they retire? Well, the question is akin to asking ‘how long is a piece of string?’; the answer will vary, and sometimes quite markedly, from individual to individual.
However, the Thai Financial Planners Association, which is a non-profit group of financial advisers and others, offers a fairly simple and straightforward way of assessing each individual’s potential needs during retirement.
For example, take a 50-year-old male earning 600,000 baht a year. The Association suggests income will grow by an average of three percent per year, year on year, until the retirement age of 65 is reached.
So, 15 years on from his current situation, the 50-year-old should retire on an annual income of about 900,000 baht per year.
The Association suggests most people can maintain their lifestyle on about 60 to 80 percent of their annual income at retirement. That would mean our 65-year-old retiree should be able to maintain his lifestyle on between 540,000 and 720,000 baht per year to start.
The Association suggest the best way to work out a more concrete figure is to assess your lifestyle based on 70 percent of income at retirement. That would equate to 630,000 baht per annum to start.
The next step is to work out your life expectancy, which these days could easily mean to the age of 90, a further 25 years into the future. Given an annualised inflation rate of three percent our male will need to generate an overall income of around 24 million baht to cover him to the end of his days.
To put that figure in current foreign exchange amounts, the 24 million baht is around US$800,000 or £530,000.
Naturally, for foreigners from many Western developed nations, the potential shortfall in their income requirements may be offset by a pension, be it state-sponsored or private. Yet, increasingly it seems Western governments are realising they don’t have the numbers available to fund long-term retirements, and so many expats who have chosen to live out of their home country are penalised by being refused pension increases or simply refused the pension altogether.
This makes it necessary for the average person to take steps now to ensure his or her retirement will be as carefree as humanly possible.
As the Association notes, the secret to living within your means when you are retired requires you to live within your means while you are working.