How to calculate your retirement
Many people lack an ability to perform quick mental calculations. And this circumstance seldom improves with age.
Thinking processes become slower and less sharp once a person reaches late adulthood. But when it comes to money, you want to be able to calculate probability, risk, and relative value without staying up all night.
Consider two jars of jelly beans. A large jar holds nine coloured beans among 100; a smaller jar contains 10 beans with only one of them coloured. If you have only one chance to choose a coloured bean and win a prize, from which jar would you draw?
Many people choose from the larger bowl simply because they see more winning beans. More numerate people, however, tend to see the big picture and can calculate the probabilities.
Nine in 100 is nine per cent, whereas one in 10 is 10 per cent, which means you have a slightly better chance going for the smaller jar.
Could you survive quite nicely without knowing this? Absolutely. But, as you approach retirement, being somewhat innumerate does make life more difficult — which simply means you should get some help whenever possible. Here are a few suggestions:
Decide what your time is worth. If you’re still working and trying to save, just how do you value your time? For instance, is it better to paint your bedroom or pay somebody else to do it?
If you earn $65,000 a year, your time is worth roughly $34 an hour, assuming a five-day work week, minus vacation and holidays. So, if a painter costs about $25 an hour, you've got a pretty sound rationale for pulling out the chequebook instead of that ladder.
But that's not the whole story since you’ll lose a sizeable chunk of your hourly wage to taxes and, unless you’re part of the underground economy, you’ll also have to add a couple of bucks an hour to pay the painter the HST.
Quality control aside, your best bet is to get a better handle on what you really make so that you can compare a contractor’s costs with your own. Try this calculator for starters.
The calculator produces a personalized report that can help you figure out what you’re really making and whether to take on part-time work or rent out rooms on Airbnb — and at what rate.
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