Retirement Planning with Hamburgers!

I know what you are thinking. Retirement planning is done by sensible people, and sensible people don’t plan anything with hamburgers, but please bear with me. Hamburgers can have a place in retirement planning and I’m going to show you why.

You see, planning your retirement doesn’t have to get complicated. We just need to determine how much money we need and then save up! Different people are going to need different amounts, but as a starting point $75,000 annually seems like a good number for Americans (I’ll come to Brits later).

That’s because, according to research by Princeton University, a US family’s mood was related to how much money they had, but only up to $75,000. Above that value money had no impact. More money wouldn’t make a family happier above that amount.

At current exchange rates that’s about £58,000 sterling for a UK family, which compares well to a study done in Britain where those surveyed said they could live comfortably off £30,000 (for an individual).

Actually, a British couple wouldn’t need quite that much because they’d be getting their state pensions, which are currently around £6,500 per year. Subtracting two pensions from the target of £58,000 gives £45,000. Consequently, a British couple would need £45,000 a year for their retirement.

Now we know that, we can use the rule of 25 to calculate how much we are going to need in total. The rule of 25 gives you a simple, accurate method of calculating how much money you are going to need in retirement.

It works like this. You decide how much you are going to need annually and then multiply that figure by 25. If you decide you need £45,000 a year to live off, you simply multiply 45,000 by 25, which gives you £1,125,000.

That’s it. The average British couple needs £1,125,000. With that they should be able to lead a happy retirement without ever running out of money.

What if you can’t save £1.25 million, though. After all, that’s a lot of money to a lot of people. One option is to retire somewhere where your money can go further and here’s where Big Macs come in.

The Big Mac Index shows the price of Big Macs around the world. At the time of writing they range from $1.75 in Egypt to $6.54 in Switzerland. In Britain they cost $4.23.

Based on Big Mac prices, Britain is 142% or 2.42 times more expensive than Egypt (4.23/1.75= 2.42). If we assume the cost of living follows this, then we could live on a lot less in Egypt. These Big Mac prices suggest we could live on £23,967 (£58,000/2.42 = £23,967).

In fact the figure is even lower because we can again subtract 2 pensions, which brings our target to £10,967. Using the rule of 25 we find that a couple needs £274,174 to live a happy retirement in Egypt.

Of course if you’re not confident on the power of hamburgers to assist with retirement planning, there are plenty of other sources of information that enable you to compare the prices in different places. I like Expatistan as it enables you to compare cities and countries in much more detail.

In the end, calculating how much you are going to need for retirement is going to depend on what kind of person you are. Folks with a taste for fine wine, classic cars and expensive holidays will need a lot more than folks who like staying in watching TV.

Whether you plan to spend you days drinking fine fine wine or watching TV, the Big Mac Index and the Rule of 25 are great tools to help you on your way.