RETIREMENT

As a rule of thumb everyone should be saving at least 15% of their income throughout their working life in order to ensure an adequate income in retirement. You can also calculate how much you should save by estimating how much you can comfortably live on in retirement. Much depends on where you plan to live but let’s say you can live on $2,000 a month in today’s money. If we assume you can generate 4% interest from a capital sum you would therefore need to accumulate $600,000 before you retire. And this figure will need to be adjusted annually to take into account inflation! Of course you can manage with a smaller amount by dipping into capital to achieve the monthly $2,000 but as inflation bites there is the danger that the capital will run out at a time when your health and long term care needs are the greatest.

How can you reach such a target?

The answer may be no way if you have left it too late. But if you have another 20 years to retirement and can rely on a steady income then by putting $1,000 a month into a regular investment plan generating an average return of 7.5% per annum you should meet the target (but remember it is a moving target so savings should also move up with inflation). If the target is beyond reach you can at least comfort yourself by knowing that you are in the majority. Studies in the UK have shown that even in a country where pension contributions are mandatory only a minority will have saved enough to maintain their standard of living in retirement. But it does not mean you should give up. Early action will at least provide some damage limitation!

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