How many times do we hear the same old message, were not saving enough for retirement!
Okay, so how much should we be saving?
Well, there is no one right answer I’m afraid. It all boils down to a whole host of factors such as your age, income, circumstances and what you want to achieve and so forth.
But don’t be scared by reading the scary stats quoted by pension companies about this – the most important thing to remember is that anything is better than nothing! Furthermore, it’s never too late to start.
How old are you?
A good rule of thumb is to divide your age by two and save this percentage of your salary each year.
So, for example, if you’re 40 you should try and save 20% of your earnings each year – if your 30, 15%, 50 years old then 25% and so on.
For many of us though, this simply isn’t achievable – especially if your raising a family, paying for children’s education or wedding etc.
A good and sensible alternative therefore is to work out how much you can realistically afford to put aside each month.
What can you afford?
Do this by calculating your monthly income and deduct all essential expenses, such as mortgage/rent, bills, food and travel etc – don’t forget to take into account yearly expenses such as TV licence, car insurance or any other subscriptions.
Also, any debts should be considered at this stage. It might be a sensible idea to pay off any debts, loans or credit cards before you start saving, otherwise the interest you pay on your debt will outweigh any interest you earn on savings.
Save a fiver a day
How much is left over once you have accounted for all the monthly necessities? many people are finding that they have very little, if any, spare cash left over.
If this is the case, you may want to have a serious think about areas in which you can cut back on and save up a little money – you may find drawing up a payment plan helps.
It may only take small sacrifices like making your own dinner for work, drink less alcohol or use super-market own brands wherever possible – these could all lead to saving a fiver a day.
What do you want to achieve?
What kind of lifestyle you would like in later life will reflect the amount you will need to save – ask yourself how much would i like to maintain in retirement.
It’s likely that you will have paid off the mortgage by the time you wish to retire, you won’t need as much weekly expenditures such as travelling to work and if you have children, they will be grown up and independent.
On the other hand, you may want to enjoy the free time you have in retirement and go on more holidays, take up a new hobby or help grandchildren financially in the future.
It is recommended by the Pension Commission that in-order to maintain your current lifestyle you will need 50% of your final salary (before tax) – however other financial planners recommend 70-80%.
When do you want to retire?
At this stage, you need to start thinking about when you’d like to retire, do you want to retire at an early age? If so, you’ll probably need to contribute to your pension pot at a much faster rate than if you were planning on working longer.
A good idea is to consider a phased retirement – reduce the number of hours you work slowly over a short period to help supplement your pension in the early years.
Alternatively, if you are relying on a state pension to supplement your own savings, then it’s a good idea to keep a close eye on what the state pension is doing.
The state pension used to be at the age of 65 for men and 60 for women – this has since been increased by the government to 66 for both men and women.
If you are in your early 20’s or 30’s you’re likely to face further increases to the retirement age, possibly 68 or even higher.
What have you already saved?
Review what savings and pension provisions you already have in place.
If you would like a forecast of your state pension entitlement, contact the Department of Work and Pensions by post, telephone or online.
It’s a good time to dig out any occupational or individual pension arrangements you have to see how much you have accumulated thus far – in most cases this will provide a useful projection of the amount of pension you can expect to receive in retirement.
What is achievable?
You may envisage yourself retiring at 50 and spending the cold Winter months in Barbados each year – but realistically, can you afford this?
There are many free calculators and tools available that will help you get a better understanding of whether or not your goals are realistic, and provide a good indication of what you should be saving.