I want you to do a simple calculation right now. It will only take 10 seconds, so open up the calculator on the device you are reading this on.
1. Take the amount of money you saved last month and multiply it by 12.
2. Multiply the result by the number of years before you retire.
3. Add your current savings.
4. Multiply that number by 0.04 to find your annual withdrawal during retirement based on the 4% rule.
5. Divide that number by 12 to get your monthly retirement income.
6. If your retirement date is more than 20 years away, divide that number by 2 to account for inflation (assuming 3.5% per year). If you want to see the effects of high inflation, divide by 4 instead.
7. Compare the result to your spending last month.
That is what your retirement looks like if you do not invest for the future.
The above calculation is simple and doesn't take pensions, investments, or actual inflation into account, but you get the idea. If your result is far short of what you spend, you need to start investing for the future as soon as possible.
Planning for retirement doesn't have to be complicated. All you have to do is spend less than you make and invest the difference for the long-term. That's it.
I know you are thinking that's easier said than done, but start small.
Take a hard look at every Baht you spend to see what you can cut back on. Consider getting a part-time job or working online to increase your income.
A little goes a long way. For example, just investing 5,000B per month can easily turn into close to 2.5 million in 20 years (assuming an annual return of 7%). Invest 10,000B per month and you now have close to 5 million. That is the magic of compounding returns over the long run.
Using the 4% rule, 5 million Baht gives you a monthly retirement income of over 16,000B. 10 million Baht gives you over 30,000B per month.
The table below shows the retirement income you can receive with monthly investments ranging from 2,000B to 50,000B, again assuming an annual return of 7% over 20 years.
*Note that markets don't go up in a straight line and returns are not guaranteed, but investing regularly for the long-term greatly reduces your risk.
Now you know how much you need to invest every month, but what should you invest in and what about taxes?
Luckily, if you live and work in Thailand you can thank the Thai government for providing one of the most investment-friendly tax systems in the world. I didn't believe it either until I learned the basics, but it's true. Combined with a low cost of living, your potential to build wealth may be greater in Thailand than it is back home.
Thailand has some of the best investments in the world that are available to the average person.
Many countries have tax-deductible investments, but when you withdraw your money you will pay tax on any gains. Thailand doesn't tax gains made on the stock market. So not only will you save money on your taxes when you invest, your gains will be tax-free when you sell your investments decades later (Americans might owe tax to the US government).
Tax-deductible investments in Thailand are called Long-Term Equity Mutual Funds (LTF's) and Retirement Mutual Funds (RMF's). You can invest up to 15% of your annual income in each. There are restrictions like minimal holding times and equities are not risk-free, but regularly investing in LTF's and RMF's for the long-term is one of the best ways in the world to build wealth.
Investing is available to every teacher in Thailand since you only need 2,000B or less to open an investment account.
Click here for more information about LTF's and RMF's.
Thailand has a low cost of living and an investment-friendly tax system, so there's no excuse not to invest and plan for your retirement.
Visit FIREinThailand.com for more information on investing and retiring in Thailand.
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