Back to blog

Blog Feature

By: Sam Instone

Print this Page

March 20th, 2017

Step-by-step guide to never running out of money in retirement

Pensions

[Estimated time to read: 4 minutes]

Less than half of 55-65 year olds questioned for a UK survey said they expected their pensions to last more than 10 years.

How long will yours last?

Are there steps you can take to ensure your pension doesn’t run out early?

12 steps to secure your financial freedom

Financial educator and best-selling author of Millionaire Teacher and The Global Expatriate’s Guide to Investing, Andrew Hallam, is currently touring the Middle East.  He’s focusing on expatriate financial education, and helping everyone he meets understand the challenges and opportunities they have.

Andrew’s core theme is effectively investing to enjoy the best possible retirement, so you never run out of money.

With his kind permission, in a series of 3 articles over the next 3 days, I’m going to share his wisdom with you. 

RetirementIn just 12 steps you’ll discover how to make positive changes today, that will have a hugely beneficial financial impact on your retirement.

What’s your number?

  1. How much money do you need to retire?
  2. Are you on track to hit that figure?
  3. How can you get on track if you’re not already?

Pension Retirement

Over the course of 3 days I will walk you through the 12 steps you need to take to ensure you never run out of money in retirement.

If you can’t wait that long, or want immediate answers, the fastest way is with a free portfolio review.

Step #1:

In how many years from now would you like to be financially free to retire?

5, 10, 20 years?

Write down your number.

Step #2:

How much money would you like to live on annually, once you’re financially free?

If you plan to live modestly, or in a low-cost country, your number might be relatively small – e.g., £20,000pa.

If you have lavish tastes, or a desire to live in a high cost country, obviously your number will be bigger – e.g., £100,000pa.

Write down your number. 

Step #3:

Do you own property other than your main residence? (If not, skip to Step 4)

Rental income from property is an inflation buster – because rent rises in line with inflation.

So…

If you own rental real estate, how much rental revenue per year could be generated from your property today, if it was mortgage free?

Write down that amount.

Then deduct 10% for periods of potential vacancy, and deduct your estimated annual maintenance costs as well.

What number are you left with?

For example – if you own 2 mortgage free properties each generating £700pcm in rent after all costs and vacancy considerations, you have an inflation proofed monthly income of £1,400, and an annual inflation proofed income of £16,800.

Write down your number.

Step #4:

What’s your annual shortfall?

When you answered Step 2 above, you wrote down how much you’d like to live on annually to be financially free.  If you have rental income, would it be enough to cover the entire amount you want to live on?

If not, what’s your shortfall?

For example, if you want to live on £50,000 and you earn £16,800 from property, your annual shortfall is £33,200.

Write your number down.

Inflation, inflation, inflation

Of course, unless income from property holdings covers everything you need to be financially free, your annual shortfall will actually be much higher than the number you’ve just generated.

Why?

Because of inflation…

Step #5:

What's your post-inflation income?

Here’s how to calculate your own post-inflation income gap – we can do the numbers for you if you prefer, talk to us and we’ll do all your calculations to get you on track.

Click here to open a compound interest calculator and switch to Standard Calculator view.

Compound Interest Calculator

  • Change the currency to Pounds.
  • Enter your shortfall from Step 4 in the Base Amount field.
  • Enter 3.5% in the Annual Interest Rate field (annual average inflation).
  • Enter the number of years from Step 1 into the Calculation Period field.
  • Change Compound Interval to Yearly.

Compound Interest Calculator

Using our above £33,200 shortfall and a 20-year period until financial freedom day, the post-inflation income gap rises to £66,060.99.

Post-Inflation Income

What’s your number? 

This is the annual amount of income you want to achieve to enjoy financial freedom when you retire.

What’s next?

Now you have your number, you need to work out if you’re on track to hit it, and if not what exactly you can do about it.

In tomorrow’s article we’ll tackle these issues, and ensure you’re on track to never run out of money in retirement.

Don’t want to wait? 

No problem, just reach out and talk to us, and we’ll crunch your numbers, and map you a path to financial freedom.

Or request your free personal portfolio review now.  With it you will discover where you can cut costs, how you can increase your returns and enjoy a financially free retirement.

Request your free X-Ray Report

About Sam Instone

Sam Instone, CEO at AES International, is passionate about positive change and ensuring expat investors get the best results.

  • Connect with Sam Instone