Following a strict budget doesn’t mean to contribute to retirement saving. You can maximize the savings even with limited income. There are many ways to make you financially comfortable at retirement age. Retirement is a necessity at a certain age. Don’t feel it as a forced condition; take it as a reality. You should enjoy it but you need regular income to meet out the diverse expenses; a major part of monthly expenses may be the medical bills, rent, home maintenance, transportation, living cost etc.
Can You Neglect Importance Of Saving For Retirement?
Should not you dream of travelling, golf playing, eating out and making big-ticket purchases after retirement? In order to pay the expenses after retirement and having all the fun you want to enjoy, you need a dependable source of regular income. You need to set some money aside much before the experience age; this period allows the saved money to grow fast in order to hit retirement goals. Here are six critical aspects of retirement age that make the retirement saving more important:
- Average life expectancy is rising
- You can’t actively work forever
- Retirement period Is the best to check your bucket list
- Future may store more financial problem than the past
- Relying just upon social security benefits or pension is a risky approach
- Retirement saving can support your family also
- It is not good to depend upon earning family members
- You can always save for retirement
How To Set Retirement Saving Goals- Eight Tips:
Knowing how much you need the save for retirement age, what is the best way to save for retirement, simplifies the saving task giving the answer of – “Have I saved enough?” Following five best way or tips that will help you set a retirement saving goal that you can surely hit if you are committed by heart and will:
Follow 80% rule for retirement saving:
The retirement income should be at least 80% of pre-retirement income. For example, if you are making £ 100,000 per annum at retirement age, you need an assured income of £80,000 per year after retirement. The limit can be set up or down according to other sources of monthly income like Social Security, pension, part-time employment, health condition and desired lifestyle etc.
The 4% rule for total saving:
To determine the total saved to generating the required retirement income, the easy-to-use widely hailed formula is – divide the target annual retirement income by 4%. For example, to generate £ 80,000 you need £ 2 million at retirement age. The figure assumes a 5% annual return on an investment after taxes deduction and inflation rise excluding any additional retirement income.
Multiples of salary according to age:
You must know the saving target for different age so that you could keep the retirement saving on the track. Figuring out how much you must have accumulated at different stages of life, helps your plane better. According to the financial experts, you must have 50% of annual salary in saving account by the age 30. More followed savings benchmarks are:
Age 40 – 2 times of annual salary
Age 50 – 4 times of annual salary
Age 60 – 6 times of annual salary
Age 67 – 8 times of annual salary
How much can be saved?
According to figures provided by Bureau of Labor Statistics (BLS) in Consumer Expenditures Survey, the income percentage for saving left over for the workers between 25 to 74 years age averages 19.8%. The age- saving slabs are defined as:
25 to 34 years: 19% of income
35 to 44 years: 23% of income
45 to 54 years: 27% of income
55 to 64 years: 22% of income
65 to 74 years: 8% of income
List all your assets:
List all the financial assets, not just the pension funds that have high potential to generating future income; yes, even if these financial assets are not generating ‘ready to be used today’ income at present. The list gives you a fair idea to calculate the maximum income available at retirement age.
Beware of cost of delay:
The available figures show that the average person who starts earning and saving at 25 years age need to contribute only 14% of income to hit £20,000 target by the retirement age. But if the task is left unattended by the age of 35 years, they need to contribute almost 23%. Similarly, if you make it late by 45 years age, you will have to save at least 50% of income. The message is clear- you pay high cost for not saving for retirement at the earliest possible.
Set the target for real return:
One typical aspect that you need to account for is effect of ever-rising inflation in the UK. Although none of us knows about the future inflation rate, the sensible approach towards this is to consider the difference between the investment return rate and inflation rate. The difference is of great importance. For example, if the inflation rate is 3pc / annum and average investment return rate is 5pc /annum, the real return is 2 pc.
Curtail the expenses:
Everyone loves to live glamorous and fun-filled exotic life but every comfort and luxury comes at a cost. If your earning is not adequate to save enough for the required retirement saving, you should focus on curtailing living expenses. Think twice before going on expensive holiday tours, organising parties, joining numbers of entertainment clubs etc.
Whether the employer offers deposit to saving accounts or you set own retirement saving account for automatic transfer of funds, perfect planning on realistic ground makes it a painless task provided you remain honest to saving plan. The improved longevity should also be considered while planning for retirement saving. According to Office of National Statistics, the population living over state pension age is expected to be about 23pc by 2031, while it was just 16pc in 1971. Although the activities and expenditures decrease with growing age steady monthly income is required to cover living cost. If you don’t have adequate saving to live comfortably after retirement, think to delay retirement.