For most of us, managing our debt, savings, and keeping a healthy budget from month-to-month can be a tough task – however, keeping a healthy cash flow is only part of setting yourself up to reach financial freedom. What is also important is to consider what you will be able to save for your retirement.
While retirement might seem like a concern for the future, the best way to set yourself up for comfort and peace of mind in the future is to begin now. If that seems like a difficult task, don’t worry – we’ve got some easy pointers to steer you in the right direction.
How much income should I have in retirement?
Creating or keeping a steady income in retirement is a concern for most people, given that they might not be able to work as hard as they did when they were younger. Advice on how much income you should have in retirement can vary from person to person, as we all have different lifestyles, wants, needs, and expectations of what comfort should be as we get older.
Registered financial services such as Allan Gray advise that a person heading into retirement should have saved enough money to keep a monthly income of 75% (that is, three quarters) of their final salary from their workplace.
The idea behind this rule-of-thumb is to allow you to budget for changing costs as you grow older, such as living in a smaller or more affordable house or eventually paying more for medical and care-related expenses if the need arises.
How much capital should I save?
Capital is a term that means wealth in the form of money or other assets (such as property), and can refer to the total amount of money that you save and invest over your lifetime.
By the time you do retire, you’ll need to have saved enough money to maintain the level of comfort you had while working.
Over the course of your working life, you will have the opportunity to save money for the future depending on how well you are able to budget. A good rule-of-thumb to follow is to aim to save a certain amount (percentage) of your income based on your age at the time.
If you haven’t started saving for your retirement, to have 75% of your current income at retirement age a worthwhile guideline might be:
- At age 25, you would need to save 17% of your monthly salary
- At age 30, you would need to save 22%,
- At age 35, you would need to save 30%
- At age 40, would need to save 42%,
- And at age 45, you would need to save 59% of your monthly salary.
Following this rule lets you save more money as your experience and salary grow as you get older, and by keeping a budget, you can always work out whether you are on-track or not.
What options do I have?
If meeting those goals feels overwhelming, don’t worry! There are many paths you can take to set yourself up for a great retirement.
You can look to create an investment early in your life that might mature later on, subscribe to a retirement annuity or pension plan or, if you need help with planning for your future, approach a registered financial advisor.
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