How much do you need to save for retirement?

HOW MUCH money do you need to save for retirement? It is a simple question but the answer is complicated because there are so many variables, some known, others impossible to pin down, that can shape the final answer.

Planning for any goal as big and far away as retirement requires some assumptions and an understanding of how they may impact potential outcomes.

When will you start saving for retirement, for example? How much can you save every year? When will you retire? The answers to these and other key questions will have an impact on whether you will attain your retirement savings goals.

To simplify matters, there is a rule of thumb: Save at least eight times your pre-retirement salary to help increase the odds that you will not outlive your savings during your retirement.

That might be a daunting task; however, you do not need to need to save eight times from the start. Rather, you can step up to it over your working life.

For example, at 35 years of age, you should have saved one times your current salary, then three times by 45, and five times by 55.

Setting up clear goals linked to your salary can help simplify your planning, and help you determine if you are on track throughout your working life. Having such guideposts is particularly important in today’s workplace, where layoffs, job switching, escalating health care and education costs can complicate your efforts to save for retirement. Consider the following:

Starting age

The earlier you start saving for retirement, the better. The longer you delay, the harder it will be to reach your retirement savings goal.

To catch up, you may have to allocate a bigger portion of your salary to retirement saving, or even delay retirement, which in some instances might not be possible.

The longer you delay saving, the worse the shortfall is likely to get. If you were to start saving at age 30, the goal of reaching eight times your salary would still be achievable, but if you wait until you are in your 50s, reaching eight times your ending salary is going to be a toll order.

Retirement age

Your retirement age can have an even bigger impact on your retirement savings. The longer you can postpone retirement, the lower your projected savings factor needs to be and the longer you can stretch your savings to accommodate your retirement savings goal. Of course you cannot always control when you will retire, health and job availability may alter your plans.

Another consideration to help you improve the amount of your “paycheck” in retirement is to save additional money in an Individual Pension Plan.

If you have maxed out your workplace savings plan, or do not have access to or choose not to invest in a workplace savings plan, Individual Pension Plans like the Zimele Personal Pension Plan can also be attractive savings vehicles to ensure you enjoy your golden years in comfort.

Bottom line
There is no magic number for the amount you should have in retirement savings. Every individual’s priorities and needs are unique. But determining how much income you will need in retirement is a critical step in meeting your goals.

As you approach retirement, envision the lifestyle you want, and estimate what it will cost, but be as practical as possible to avoid disappointment. Finally, own your plan and stick with it as if your life depended on it.

Zimele Research team. Write to: [email protected]