Can you afford a 20 year holiday?
Personally, I couldn’t right now. But I could if I had the right financial plan in place, and had enough time. And so could you.
They say the average length of time we’re in retirement is 20 years. This is a period of time where we are not earning and so are essentially on - a 20 year holiday.
Pension, retirement, superannuation - whatever you want to call it - they all sound pretty boring to be honest. I don’t know about you, but whenever I hear these words, I don’t get that excited. I get flashes of old people, grey-hair and community living. However, with the population now leading fitter and more healthy lives, the word ‘retirement’ should bring flashes of drinking wine in magical vineyards, cruising on a boat in the Caribbean or relaxing on a beach in the Med.
We are trying to change the view of retirement as an exciting phase of your life. A time where you get to relax, have fun and enjoy the part of your life you have worked so hard for. However, in order to enjoy your ‘20 year holiday’, you need a financial plan. Nobody will be paying you a salary whilst on holiday, so you need to ensure you have enough to pay yourself an appropriate salary.
So, how much does a 20 year holiday cost?
A rough rule of thumb suggests that you will need 80% of your current salary for every year of your holiday. This will allow you to live your current lifestyle, whilst on holiday. If you're currently earning $100,000 per year, you will need $80,000 each year, for 20 years. This is $1.6 million! This sounds like a lot but if you’re 30 years old, and haven't saved anything for your 20 year holiday yet, you only need to invest $700 a month to achieve this by the time you’re 65 years old*. This is only really 8% of your salary and totally doable if you set your mind to it and be disciplined.
I mentioned you need a plan, but you also need time. The sooner you start contributing to your ‘20 year holiday’ fund, the less you will have to save due to the magical thing called compound interest.
Taking the above $1.6m figure, if you waited another 10 years and didn’t start putting money aside to your 20 year holiday fund until you were 40 years old, you would need to contribute more than DOUBLE each month. You would need to put aside $1500, instead of $700 per month in order to enjoy your holiday.
Having a financial plan for any goal is key. Retirement should be exciting, not scary or overwhelming. You don’t want to wake up in a panic the day before your holiday, stressing about how you’ll afford it. Be prepared. Have a plan. And stick to it. Because the only thing you should be stressing about on holiday, is whether to order a Pina Colada or Aperol Spritz.
*assuming an average return of 8% per year
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