Saving to retire can be daunting, especially considering the age-old questions of “How much is enough or how much do I need to save?” With life constantly changing and demands and needs evolving, it can be challenging to determine what is enough.

How Much is Enough Retirement Savings?

·       How to calculate retirement savings?

There are various aspects to consider when calculating how much retirement savings is needed. The first step in developing a retirement plan is calculating how much money is required after retirement. Pensioners usually have less disposable income during retirement than during their working years. It is essential to create a retirement budget. This includes a monthly amount to live on and an emergency savings account. Retirement does not exempt one from saving for a rainy day. Include any once-off expenses in your budget, like major purchases or repairs, e.g., a vacation home, new car, or renovations.

Fortunately, your financial advisor could give you projections of what your retirement savings could be worth in the future based on specific market trends, such as a conservative growth of 6% per annum with compounding interest. This will help create a retirement savings plan.

·       Visualise your retirement lifestyle

You need to know what you want from retirement. To plan for retirement, you need to visualise what kind of retirement lifestyle you wish to lead. The easiest way to start is to work on your current income and lifestyle.

Do you want to maintain your current lifestyle? What kind of hobbies will you partake in? They may be expensive, like golf.

Will you keep your current home or downgrade?

Do you have a vacation home or wish to purchase one at retirement?

Will you have adult children still living at home or dependent on you?

Will you keep two vehicles or downsize to one?

Examples of retirement lifestyles

Simple retirement lifestyle – You will live on a smaller budget than your working salary. You are financially stable and have enough for day-to-day living. You have downgraded your home to something smaller and more manageable. You enjoy hobbies, gardening and one or two vacations to visit family and friends locally. You might even consider moving to a country with a cheaper cost of living to maintain a higher level of retirement lifestyle.

Moderate retirement lifestyle – You want to maintain your current lifestyle and home and be able to travel two or three times a year, eat out regularly, and partake in hobbies and social activities.

Luxury lifestyle – You enjoy travelling frequently and partake in hobbies and social activities. You host regular dinner parties. You have a vacation home that you like to visit in the summer and have luxury cars.

·       Estimate retirement savings – How much can you save for retirement?

Now that you know the kind of retirement lifestyle you want to lead, you need to plan how much to save to achieve this desired lifestyle. A financial advisor can help formulate a retirement plan to follow. You may want to achieve a luxurious retirement lifestyle but don’t have enough disposable income to save over the long term.

It is important to have realistic expectations about your retirement needs. Your lifestyle will depend entirely on what you can save over the long term.

·       Expect the unexpected

Life happens, and unexpected things will occur. A traumatic accident that leaves you needing permanent medical care, marriage, divorce, etc. Plan for more than you expect to need so that any surprises can be covered financially.

Planning Your Retirement Savings

It’s never too early to start thinking about a retirement plan – in fact, the earlier, the better. On average, a professional has around 40 years to save for retirement, which could last as long as 30 years or more. Thanks to better nutrition and medical advancements, people are living longer. These days, professionals need to save more to cover the longer retirement.

Forty years does not seem a long time to save enough to cover 30 years of funding. Thanks to compound interest, this is possible. Compounding interest is interest on interest and grows steadily year on year. Each year, the compound interest amount grows until eventually, usually close to retirement, the interest earned is more than the capital invested. So, time is of great value when saving for retirement. It is better to start early with a small monthly savings and increase it than later with a larger amount.

·       Kinds of retirement income

When planning for retirement, it is vital to consider all forms of income.

Personal pension plans – these are private pensions or savings plans that the owner can contribute to regardless of being employed and could be the primary source of retirement income.

Government/State pensions – these pensions are paid from the state and are derived from National insurance or social security payments made during a person’s working life. There is usually a minimum period of contributions required to qualify for a monthly pension, e.g. 15 years of social security contributions.

Workplace pensions –these are pensions that an employee contributes towards during their employment time with a company. It often includes contributions from the employer as well. During a person’s work life, they may accumulate several pensions. Consolidating these into one pension pot could be beneficial.

Other forms of income – these could be rental income from property, dividends from shares, inheritance or money from investments.

·       Long-term retirement planning

Long-term investments across a diverse portfolio can minimise risk and capitalise on market gains that beat inflation for more years than not.

Find a Reputable Financial Advisor

People are living longer. These extra costs mean that the savings you have in place for retirement might not be sufficient, which is why planning to ensure your long-term financial security is vital.

 Look for a reputable financial advisor who understands your individual retirement needs and can custom-make a plan suited to your financial circumstances and needs. Your financial advisor will walk your entire retirement savings journey with you, from saving in your twenties right up until your sixties when you retire and beyond.

Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere advisor for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.