When you plan for retirement , always plan to achieve a higher retirement lifestyle and longer life expectancy than you what you think is likely the case. In this way, you will "automatically" plan in buffers.

This is best explained using numbers or retirement expenses.

Let's use my plan as example. I tracked my family's monthly and annual expenses and thus I have a good feel of what my retirement expenses would look like.

Currently our annual expense is around $180k a year. Although my children are working, they are living with us and we are still paying for all the household expenses. The $180k also included our substantial income taxes (~ $40k per year).

When we retire, we would not be paying the income tax, so that would immediately lower our expenses by $40k! We would not need 2 cars, so that would further reduce our expenses - say by another $5k. In retirement, we also expect our children to step up and start to pay for the household utilities, food and some other stuff. If they move out to start their own families, it would also mean that we will reduce our household expenses. Either way will result in lower expenses for us to maintain the household.

The net effect is that in retirement, we estimated that our annual household expenses will be $100k or less. This amount will allow us to make 2 trips a year for holidays and still have car.

Our current passive income hovers around $165k. Since we are still working, we reinvested the income. As you can see, there is a buffer of $65k. This buffer can help us offset inflation (say 3% pa) for up to 7 years! While maintaining our $100k per year lifestyle. As we age, we also expect to cut down travelling and thereby reduce our expenses.

Besides buffering against inflation, there is always the medical expenses to consider. With age, we expect to spend more on medical treatment.

So although we planned for around $100k in annual expenses in retirement, in reality, we expect to need less than that. But because we set up to meet this target, we have already managed to achieve $160k passive income - giving us a good margin of safety as well as great peace of mind.

On the other hand, had we set a low target, we would have slacked off earlier (prematurely) and later in retirement, we would end up always worrying about whether the savings would run out instead of enjoying retirement as we are supposed to do!