It is essential that you plan for your retirement, starting from the first job that you ever have. If you have already passed that milestone, do not worry, there is still time for you to get started. In fact, it is never too late to start. However, one may wonder why there is actually any need to save for retirement, especially when you are in your early twenties or thirties?
Well, think of it this way. When you retire, you will have no source of income. In the event that you have been employed your whole life, you will no longer receive a salary. If you run a business, you may need to hand the reigns over to someone else as you may not have the strength to keep it going. Better health care means longer life, so there is every possibility that you will live for up to thirty more years after you have retired. In those thirty years, you need housing, to pay bills, food, entertainment as well as disposable income for other needs.
It is estimated that in your retirement, at the very least you should have access to 70% of your annual income each year. That means if you earn $100,000 a year, you should be able to access $70,000 a year. Furthermore, it is recommended that on an annual basis, 10% at the lowest of your income needs to be set aside for this purpose.
So how do you determine how much you need for retirement? Here are some ideas to help you figure this out.
Savings and Investment
When you think of saving 10% of your income each year, how you will have enough to make it through retirement may seem challenging. What you should do is look at your retirement fund from two angles, and that is savings as well investments. You need to ensure the money that you are saving is able to grow for you. A good estimate of savings and investment is to have 20% of your retirement fund in a fixed deposit account, and the rest in investments that you can liquidate when required.
Give Yourself Benchmarks
Saving for retirement requires a plan, and for the plan to be successful you need to have benchmarks. These benchmarks should every five years. For example, when you have reached the age of 35, you should have been able to save up one full year of your income for retirement. By the age of 45, this should have gone up to at least four years’ worth of your income. With benchmarks like these, you can tell when you are off course, and how you much more money you should put aside by cutting down your expenses.
Build Up Your Assets
Work towards building up a good base of assets. The main asset that will eat into your funds is housing, so aim to be a homeowner by the time you have reached retirement. This means that your mortgage should be fully paid for by then. In addition, you should have a car, and a good car, that you can move around in to cut down on your need to purchase one in your retirement. Ensure that you have no outstanding debt, especially credit card debt by then.
The amount that you need for retirement depends on your own expected level of comfort, and the lifestyle that you want to live. Work towards ensuring that you can enjoy these years, rather than suffer through them. The most important thing to do is to get started, and with a plan you will put away just what you need.