Make Money

Want to Retire Now. Can You? Check Here

Friends whinge they have to keep working, put up with bosses from hell, fickle clients, unreasonable deadlines, uncommitted staff, etc, etc. These are professionals at the top of their game, earning big bucks with money in the bank and more than one property to their names. So throw in the letter. Hell, no! We can’t afford to! Commitments!

Rather than arguing back and forth, I decided to come up with a quick calculation for people to see if they can retire, now.

This is a fast and dirty calculation which I have worked out and you should probably consult some expert financial planner before you actually write that “Dear boss” letter. However you decide to use my calculation, believe me, when you realise you are financially independent, everything will suddenly assume a different perspective. You can smile indulgently at that bossy boss or annoying client because at the back of your mind, you know that you can give that “Dear boss” letter anytime you wish…though I bet you still won’t because you love accumulating wealth too much.

This is what I call the 4015 Rule. By the way, this Rule has gone through testing on my Excel spreadsheet.

First, calculate how much you are currently spending on living expenses every month. No cheating now. Don’t add the “what ifs” and bump up the number. Multiply by 12 to get a yearly number, (A). Now include those items that you spend every year but are not monthly items like insurance or holidays, (B). Add (B) to (A) to get (C).

How many years do you expect to live post resignation? If 15 years, multiply (C) by a factor of 40; if 20 years, multiply by a factor of 45; if 22 years, multiply by a factor of 47. You get the picture. Just add 1 to 40 for every retirement year that exceeds 15. So if you

  • need RM80,000a.
  • expect to live another 25 years,
  • the capital you need to retire now is RM80,000 x 50 = RM4 million. [50 is derived from (25-15)+40]

This fast and dirty method assumes a few things. The key assumption is the return on your capital is the same as the inflation rate of 4%. This is a conservative assumption. If you can generate higher returns than the inflation rate, the capital you need to retire now reduces substantially. This demonstrates the importance of smart investing. You better hope EPF doesn’t do anything foolish with your money! If you think your return will be lower than inflation, then sorry mate, life is not going to look rosy. If you want to increase your return and inflation rates to 5%, contact me and I will give you the factor to multiply by.

I am also assuming that your children love their in-laws more than they love you. So you don’t get any “coffee money” from them when you retire.

Lastly, I am assuming that you want to leave your capital intact to charity or to your beloved children (and in-laws) when you go upstairs. If that is not your thing, then you can seriously pamper yourself in your dotage with your capital.

Wait a minute, what about unexpected expenditures like medical, or items like my children’s education? Just set the amount you expect to spend aside over and above the capital value above.

So, worked out the number? If there is a smile on your face, congratulations! You are now a trust fund baby, albeit the trust fund was created by your goodself and not Papa Hilton or Grandpa Walton. Speaking of trusts, I am seriously considering setting up a family trust for my assets. From what I understand, this is good for tax planning and more importantly, it will protect my assets from creditors, even regulatory bodies (if I have illegal or immoral earnings – which I don’t for the avoidance of doubt). I will be able to share more on that after I attend the Family Trust training in mid – August.

 

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