A reader asked, “What is your idea of a comfortable retirement?” A discussion.
The answer is subjective and subject to significant change especially if we are far from retirement. Perhaps only those investing for at least a decade will likely ask this question.
‘Comfort’ implies something well above a basic requirement. So let us first define the basic requirments of a retirement plan.
- It should provide an income based on your current expenses (projected at the time of retirement with an assumed inflation). Such expenses should be reviewed each year before retirement to ensure it takes into account lifestyle changes.
- Such an income should increase each year in retirement at an assumed inflation rate.
- Since increases in expenses is rarely uniform, the income should be quite flexible to handle withdrawals more/less than the normal.
- A sum should be allocated to handle emergency expenses.
