The three step retirement calculation described in previous posts contained a number of assumptions (some expressly stated, others implicit) and some conscious elections. These include:
1. that paid employment will not be relied on in retirement;
2. that the mortgage and other debt should be repaid before retirement;
3. that retirement assets (or at least most of them) should be invested in shares and real estate;
4. that retirement assets will produce a yield of 4% per annum (as distinct from a return of, say, 8%) and that only the yield will be used to fund retirement. Put differently, not only should capital not be drawn down against to fund living expenses but it should be allowed to grow over time;
5. that neither a company pension nor government welfare can be relied on to fund a retirement.
The assumptions mentioned above are different in whole or in part from those that many financial advisers use when offering financial advice. Although I make no claims to expertise or qualification as a financial planner, I have serious reservations about a number of matters that are often relied on in preparing a financial plan. Although these assumptions will have the effect of materially increasing the amount of savings needed to adequately fund retirement, given the consequences of running out of money after leaving the workforce, my own preference is to err on the side of caution and avoid unnecessary risks.