Friday, May 07, 2010

Capital to Income ratio

This article shows that you need 12 years of your income to be sufficient to retire at age 65, to generate a lifetime income of 80%. I think that this is far too high. You only need to have an income of 40% to live comfortably, so 6 years would be sufficient. During your working life, you only spend 50% of your income, as 25% is saved for the future and 25% is used to pay for your home. When you retire, you will send less, so 40% is more than sufficient. This is explained in my book, Practical Guide on Financial Planning.
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4 comments:

Anonymous said...

When you mention when a person retire, he or she spend less.

Can you elaborate what do you mean when you spend "less"?

May 07, 2010 6:17 PM
Tan Kin Lian said...

They do not have to travel to work and spend money on the work related expenses. When they retire, their children are likely to be independent, so they do not have to spend on the children.

May 07, 2010 6:42 PM
Anonymous said...

Kin lian,

It depends also on your last drawn salary before 65. For example for the Ministers 40% is a lot.

May 08, 2010 1:39 PM
Createwealth8888 said...

The reduction in spending on children is more likely to be offset by increase in expenses for health and medical care.

May 08, 2010 3:34 PM

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