How much money we need to retire at age 60 can be answered in many ways. I wrote earlier (you can read it here: bit.ly/2ruHEtK) that you need eight times your annual income at age 60 to retire comfortably. Plenty of people wrote back to say that a more useful benchmark will be an expense multiplier rather than an income multiplier. An expense multiplier is, in fact, a better way to crack the same problem because at the same level of income, different families will have very different expense behaviour. I know families that don’t know where their money goes and others who have tiny expenses because of their chosen lifestyle. An expense multiplier assumes that you know how much you spend. Many families are clueless of their annual expense number—money comes in and money goes out. So get a hold on how much you spend in a year as a first step.
To the guy knocking on the rolled-up window of my old Swift Dzire, I’m surely rich. I get driven around and sit reading a paper in air-conditioned comfort. But as I turn into the office parking lot and my car becomes one among the many parked there, my aura of “richness” fades a bit. To the parking attendant, my value-for-money car compares unfavourably with the high-end cars parked there. To the young intern who lives in a south Delhi barsati, I must seem rich—life looks sorted and the home bought. But to a financial sector business leader who I meet the same day—I surely seem very middle-class, not rich. The same chief executive who looks rich to me—with his small aircraft-like car and the two digit with a crore at the end of it house in Cuffe Parade—looks positively poorer than the 20-something e-commerce entrepreneur who is now worth a few million dollars, or to the third-generation inheritor with the right last name to do business in India. Who then looks not-so-rich when he finds his name missing in the list of the 100 richest people in the world. But then, one of the richest people in the world who sits on that list still cuts out coupons to eat cheeseburgers and drinks Cherry Coke rather than the finest single malt. That’s not a very “rich” thing to do. Want to guess who that person is? It’s legendary investor Warren Buffett.