Whether you’re in your thirties or fifties, retirement is a time of your life that you should be thinking about early. It’s not enough to let the government take care of a pension plan as one may not exist come time for you to retire. Putting the task off for next year or five years down the track is going to put you behind and place you in a difficult position financially. The sooner you start saving for your retirement the more comfortable your retirement years will be.
How much do you need to save for retirement? The figure depends on your current standard of living, the expenses you anticipate in the future, medical bills, and things you need to do. A retired person who wants to travel and live the high life after they finish working will probably require more funds in their retirement account than someone who wants to spend their days in their garden, reading books and relaxing in their local time. Either way you will need to find a figure that realistically suits your expectations.
For example, say you are 40 years old and want to retire at 65. Currently you have $10,000 in retirement savings, your annual contribution increase is 1%; your expected return is around 7% and an annual inflation rate of 3% with a current annual income of $50,000. If you’re employer provides 10% towards your retirement that amounts to $5000 per year, and after 25 years you will have accumulated approximately $430,000. If you plan on withdrawing the same amount you were earning each year, the funds will only last you less than 10 years. Add an extra $50 per week from your own cash and after 25 years you will have over $620,000 in retirement income.
The sooner you start saving for your retirement the better off you’ll be. With the same figures if you were to start contributing to your retirement at age 25 you would potentially have over $1,900,000. That’s three times the amount if you started fifteen years later.
Write down what you think you will need during your retirement. Consider travel, monthly bills, food, accommodation, hobbies, gifts, going out, medical costs and miscellaneous costs that may arise. Add it all up. It might be $2000, it might be $5000. Whatever the amount is you should be planning to have enough in your retirement account.
The more you save the better you’ll be. Try to make extra contributions regularly to ensure that you won’t be left short when it comes time to leave the workforce. Every extra dollar will make a difference in the long run.