How Much Money Do I Need To Save Before I Retire?

Social Security and Private Pensions

Social Security and Private Pensions

For some, social security and private pensions are still an achievable reality in your retirement. What is also a growing reality though, are the extra number of years of work before you can enjoy that retirement.

The age of retirement is rising alongside life expectancy, whilst the number of working people paying into a state retirement pot is dramatically decreasing.

In the US in the 1940s there was a 44:1 ratio of workers to retired people, paying into the social security system. That figure now is more like 2:1. In Spain at present, the youth unemployment figure is nigh on 50%, yet the number of people in retirement is not decreasing. It doesn’t need a genius to tell you that the state pension systems are in big trouble.

Politicians will continue to sooth you with their not so charming tales and promises, but sooner or later we will all need to wake up to a new reality.

Those of you under 40 or even 50, need to be starting to look after yourselves financially in other ways, because the chance of receiving a state pension on retirement at 70, 75 or even 80, as the case maybe in 30 years, is very slim. Private pensions are increasingly unstable too as they are reliant on the stability and integrity of investment managers and stock markets increasingly open to crashing.

So lets use this likely scenario to take a look at the kind of figures needed, to set you up nicely for your retirement. We already established in a previous article that an annual retirement income of between $97 000 – $173 000 in thirty years would be a realistic amount to sustain a decent lifestyle. What we need to do is deduct from this, the combined amount you can expect from any state and private pension provision. How about a figure of $30 000 per year for these two. Take the $30 000 away from the lowest figure of $97 000, and you are left with your baseline figure to raise of $67 000 each year in your retirement.

There is a generally accepted rule of 4% which refers to how much annual withdrawal your nest egg will cope with in order to support you for the rest of your lifetime. This 4% allows for such things as appreciation, dividends and interest. Based on the above simple calculations, the $67 000 annual figure we have established would be required, means building at least $1.67million. 

Using the 3 – 5% margin, we are then looking at a figure between $1.67 – $3.5 million for your retirement fund in 30 years. That’s quite some amount, and is why we need to start developing a new financial intelligence and making alternative plans NOW.

How we can do this is subject to greater exploration, explanation and guidance inside the  I am Looking forward to seeing you there.

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