One of the most common questions that people especially in their Fifty ask is “How much should I save to live a comfortable Retired life?”
I believe this is a very reasonable and sound question to have a clear financial target in mind so that you can have realistic financial plan.
Retirement Planning has different meaning for different people. While some “Retire” in the traditional sense of the word, but the majority of us continue to work in some capacity, whether or not we get a paycheck. We are active, involved and full of things we want to do for ourselves and for others. So, of late, people have started using a term “superannuation’ and not “Retired”.
Retirement Planning is not only for retired or superannuated, but as we start to contemplate retirement or even partial retirement or early retirement, we choose. Generally this planning should start from the early stages of our career or latest in 30s and must not be ignored or overlooked. The people in fifty-pluses are n enormous and diverse group but most of us face common issues around planning, saving, investing, insurance, social security, health care, estate planning, caring for our loved ones etc.
How Much Money Is Enough :-–
This is a very difficult issue as our requirements differ- depending upon our health conditions, our liabilities, our assets, and our Net worth,our debt, our mortgage, and most of us may not have precise answer now. Actually, after retirement, our financial requirements depends on the following:–
__ what you expect to spend each year
__ How much money you will need in your portfolio to support that spending.
__ How much more you have to save to get there.
What You Are Likely to Spend
There is a general perception that our expenses reduce after retirement as our commitments will be much less. The expenses on children’s higher education will not be there. Similarly, big budget spending on marriage of children, purchase of house (if you have already repaid the mortgage amount) will be over. But at the same time our expenses on health care, medical insurance and servants or care takers will increase. Further, it also depends on the life style which we want to adopt after retirement or superannuation.
The opinions differ. Based on the statistics, retired households spend about 80-85 percent of what working households spend and most of that goes to home-related and health costs.
Regardless, when you contemplate your own retirement, it’s best to get specific. Do a sample budget. List projected non discretionary expenses- such as housing, every day living, health care, insurance and taxes. Then add in projected discretionary expenses- such as travel, and other family expenses on functions and entertainment. It is assumed that you will pay all the debt and mortgage before retirement.
Living Expenses In retirement
What may GO UP What may GO DOWN
Health care work related expenses
Entertainment and other activities Taxes on Income/ salary
Travel Savings
Property Tax Debt and Mortgage
Then Calculate How Much you Need in Savings
First add up all the Income you can rely on from all the sources i.e. Pension, real estate, social security etc. Your savings will have to make up the difference between this total income and the amount you want to spend.
Let us say, this difference comes to $800/-p.m i.e approx. $10,000/-per year. If we assume that the R O I (Return on investment) is 4 percent per year,then a portfolio of $ 250,000/- in various investments would be required, which must be planned from the initial stages of our career. It’d be great if you could invest the money in a way that would let you live off the investment income without touching the principal amount, but for many it may not be possible and they may have to slowly spend the principal as well,i.e. drawing down your account.
Conclusion :–
The retirement or superannuation in the working life of an individual is inevitable and as we start to contemplate retirement, we must plan for our financial needs and start saving and investing properly so as to have a satisfying and comfortable retired life meeting our expectations and commitments.