Saving Money for Retirement

9 February, 2016

Saving money for retirement should be a high priority for many across the globe. Many of us who were born after WWII are approaching the time in our lives where we need to have enough money already saved or are frantically saving money towards that end to carry us through retirement.

I hope it’s not too late! For some though I suspect it might be… Have you saved enough money for retirement?

Very few people actually prepare financially for their golden years. In Canada we have RRSP’s our neighbors to the south have their 401’s, we have saving accounts, saving bonds, mutual funds and stock markets too as means to save money for retirement.

If you are lucky the company you work(ed) for has a pension plan or stock options.

Young workers need to plan ahead for retirement.

How Much Money Will You Need For Retirement?

Forbes.com put it very simply. If you want to have $1000.00 a month in earnings for 20 years then you need a lump sum of $196,000 to carry you through. Now $1000 a month isn’t very much, that’s only 12K a year. Hardly enough to survive on!

How much do you need a month? Maybe $10,000 or $100K a year, if so then you’ll need $1.96 million dollars.

What if you have longevity in your genes; will you need money for retirement for 30 years? You’ll need $296,000 for each thousand dollars in earnings or $2.96 million if you want $10,000 a month.

Does This Seem Realistic to You?

I don’t know about your circumstances, but for me… $2.96 million in the bank… not going to happen! Not now anyway! I mean it is like this, when I first started to work, I needed every penny to survive. Then we bought a house and vehicles. There really wasn’t much left to save, besides when I was younger who needed to save money?

Saving for the Nest Egg

It can be done though, without much pain too.

Consider this; a young worker starting out at 20 years old puts $4000 a year every year into an investment that returns 8% income, at 65 years of age he’d have $2,138,846 Bump that contribution to $5,500 a month and you’ll have $2.96 million at 65 years.

Another example… the same worker is saving money for retirement at $2500 a year at the same rate of return till 65 years old. He’ll have $1.29 million saved for retirement.

How much can you withdraw?

That of course depends on your savings. Let’s look at the worker who saved $2500 a month for 45 years. He’ll withdraw $56,161 his first year and at 90 years old withdraw $163,490 based upon an increase of 3% during retirement.

You younger folks pay attention, start now saving money for retirement. It’s a lot easy than you think. I’m sure you’ve heard someone tell you “pay yourself first”, well this is it! Take 8-10% of your monthly income and save it towards retirement.

Create a Financial Freedom Account (FFA) save 10% of your income and don’t touch it… under any circumstances. Having enough money for retirement will make or break your comfort level when you get there.

Seriously, how much do I need for retirement?

The number crunchers would have you believe you need 70% of your pre-retirement income to survive. Realistically though we can live on much less than that. If your house is paid for, and you don’t owe any money those are things that don’t come out of your income anymore. Just like commuting and your daily trip to Starbucks… OK maybe you’ll keep the Starbucks.

The point is at least in Canada, Canadians have been living on about 45- 59% of their pre-retirement income. You’ll have to do the math and see if you are saving enough money for retirement.

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