Video and transcribe available below

How do you measure your freedom?

Hi folks, Dr Ro here. I wanted to share this with you, mainly because I’ve actually just shared it with my live audience and it’s something I’ve been talking about for a long time. Not in the public space, but it’s worth me doing. 

There’s a lot of caveats associated with this. It’s a calculator that gives you an indication of how much money you need to put aside to be able to live off a certain amount of money in the future. 

What you’re seeing on the screen here is essentially a calculator which is on the Mac, which is called the retirement savings calculator. 

What this does is if you put your current age in and you tell it what day you want to retire and what age you want to retire and your life expectancy and you tell it what you desired income is upon retirement, based on a certain interest rate and inflation it will calculate for you what you need to save per month and what you need to have in a pot to be able to live off from 65 to 82 in this example. 

It essentially says you save this much money and have a big pot of money so you can live off that until you get to 82. The problem is what if you live past 82 you then go to a negative situation. 

In other words the money saved up now you’ve got nothing left to live off. If you’re 40 and watching this and you want to work to 65 and you expect to love to 82 the World Bank’s tells us it’s around 82 years of age, then you would need to save £7892 per month between now and 65 in order to live off £3,608,000 between here and here. To try and put this into perspective that’s what you have to save if you’re earning 10 grand a month and your living costs are five, you still have to find the two. Most people don’t have a spare seven or eight grounds kicking around, putting them into an account and saving for the next 25 years. 

What the data here tells us actually is due to inflation over these coming 30 plus years it starts off at 782 but each it goes up because, of course, inflation is working against us. You need to be saving by the time we get to 63, 64, £13-£14,000 a month saving. If you said to me but Dr Ro I am 20 years of age and want to live till 65 and then retire and live on £100,000 per year you need to save £5000 a month or 5 million in the bank account. If you tell me I’m 50, then you need to save £12,000 per month to have 2.8 million in the bank to enable you to live from here to here. 

Now this is where it gets really interesting, let’s go back to 40, to the middle-aged person and again, there’s lots of variations and caveats, I’m adding here. 

Maybe you say guess what I’ve got a contribution at the moment and I’m on state pension, which is about £174 per week. So 174×52 you might have £9000 a year coming in from state pension. If that’s the case then it recalculates it for you. So according to this you have to save 3.2 million and save £7100 a month so if you happen to have some sort of pension you put that into here. 

Let’s say somebody hasn’t got that preparation in place. We’ve put 1% interest rate here and we put inflation at 2.5% if you said to me I’ve got money in savings, this is where we realise how little your savings is doing for. If you said to me, I’ve got £100,000 sat in a savings account right now look at the impact this has, £100,000 in a savings account right now changes the £7892 down to £7600 a month, meaning it’s only making a tiny little dent. It’s doing nothing for you even if you had, for the sake of argument £300,000 that saving need is tiny. 

The change in that saving is tiny, £7000 a month instead of £7800, meaning that your interest and your inflation are working against each other. Your money isn’t working hard enough in the banks, it makes a small dent in the beginning, but you still have to save it. 

The only solution to this in simple terms, is this, I always joke with people and say if your money was out the bank right now and you put into a property portfolio and the property portfolio produced for you over the next few years, you got it up to £200,000 per year, eight HMOs producing £1,000 per month approximately. If we can get a passive income coming in boom. Just watch. Now you don’t have to save anything per month. 

Because what’s happened in this approach is that £100,000 is working now in your favour and essentially what that’s doing is it’s making a contribution toward your financial freedom happen immediately. In this case you are getting financially free now and that’s my point. So although this calculator is quite scary it’s a wake-up call to let you know actually if I don’t do something about this I’m going to be in trouble. I’m hoping it makes sense. 

The point I want to make is if you go to the pension calculator you can do this for yourself. It is called a retirement savings calculator on a Mac on a PC. It will be something similar. 

Start putting plans now, start thinking about what assets you can have now and build to create at least some form of security so you’re not relying on this archaic system which unfortunately doesn’t serve most people. 

Some of you might be in a slightly different situation, but the point is, it’s about having that additional asset-based income.

I’m going to sign off, hopefully that was useful.

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