The best things in life...
I read a really simple yet profound blog post a couple of weeks ago that talked about the four Ls of retirement. They are longevity, lifestyle, legacy, and liquidity, and together they can help us think about the money we will need in retirement.
The original post puts it much better, but basically longevity means the absolute minimum amount of money you will need for the rest of your life. Basically your housing, food, utilities, and medical costs. Lifestyle is everything else, from travel to entertainment to shopping to eating out. Basically anything you could cut if you had to. Legacy is money you want to give to others, before or after you die. And liquidity is extra money set aside for emergencies.
Thinking about these four can help us understand how much money we will need in the future and allow us to start planning how we can set enough aside. So what do my 'four Ls' look like?
This is the baseline, the absolute minimum you could survive on. Nothing is more important than making sure that you have at least this much money in retirement.
It's important not to underestimate this. Don't forget taxes, insurance, and the costs of maintaining or replacing household items. Medical costs will probably increase for most of us, although we'll probably have to pay less in retirement than we do while working in Japan.
Right now I think our baseline is probably around 200,000 yen a month for my wife and I, assuming our home is paid for. Food, utilities, local transport, taxes, entertainment, insurance should come in under that amount. It wouldn't be a very glamorous life, but I think we'd get by and not be unhappy.
Trying to figure this one out is the whole 'how long is a piece of string' question. We enjoy traveling, and our children now live in Singapore and Sweden. We could spend unlimited amounts on that alone :)
Throw in eating out and local staycations, and our lifestyle budget could be anything from an extra 100,000 to 500,000 yen a month.
I'm guessing this will probably decrease over time though. As we get older we'll probably want to travel and eat less.
This isn't a huge thing for me. I am not particularly motivated to leave money to my children or to any particular good causes.
I do believe in giving to charity, and plan to continue doing so (in greater amounts as it becomes possible for us to do so) but I will do this on a regular basis, not as a lump sum in my will.
Likewise with children and grandchildren. There will be no huge windfall, instead I will spend money on them on an ad hoc basis while I am around to enjoy things with them. I think money is best spent on shared experiences, or to help them with specific projects.
This seems more important. Having enough cash to deal with unexpected events without breaking the bank is extremely important to me. I'm guessing I would like to have something like a year or two's worth of living expenses, so anything from 5-10 million yen in cash or cash-like assets, to be kept in reserve.
So what does that leave us with? A fairly similar picture to the one we had last time I thought about this. It looks like we will need anywhere from 9 million to 200 million to have a comfortable retirement. We're somewhere in the middle of that range now, so I expect we'll probably be okay in the long run.
The key for me is to be aware of where we are now, where we'd like to go, and how we are doing compared to last month/last year/five years ago. Then I can make adjustments as necessary.
How about you? How are your 'four Ls'?