Part 3 of 3-Part Series
Ok, so that was a lot on burn rate and how it applies to companies! I’m sure you want to know how this applies to you and how we calculate it. At Kismet, we have a burn ratio which is slightly different from the burn rate and is calculated differently.
The Burn Ratio indicates how much of your income is being used up to maintain your lifestyle. This will help us analyze your cash flow and make changes if needed to align with your retirement expectations. We find out the burn rate by dividing the annual personal spending to the total personal income. Your personal spending is broken down into categories to further show where your money is being spent, and if you want to make any changes to your expenses. Ultimately you need your money to last for your entire retirement period when there is no more income coming in.
The value of the burn ratio really shines when taking the perceived amount of money you have at retirement, along with your current spending to show how long it will last. It’s true, no one knows how long you will live, so it’s a bit of a guess there. But if your retirement nest egg can keep you comfortable at your current lifestyle until you’re 95 years old, we’d say you’re in pretty good standing. Don’t forget that’s not accounting for any additional pensions and government support there may be. And if you pass 95 years old, well maybe time to sponge off your kids at that point…just kidding!
