As much as you can possibly put away. This is a simple answer but true. Every sacrifice made now will prevent a greater one later. We have already looked at the value of money and can see that it will be impossible to have too much. No one knows what the future holds so it is necessary to do the best you can. Doing nothing will lead to hardship while doing anything will help.
People tend to think that they will need far less money after retirement than prior to it. Perhaps this is the result of that instinctive image of a retiree as a dear old thing sitting around the house with a blanket around its knees. Those that sit around the house usually do so because they cannot afford to go out and do the things they would like to.
It is often suggested that you will need about 70% of the salary you will be earning at retirement. I am not sure how that figure has been derived but it’s probably a reasonable target. Certain post retirement expenses though, can be higher than before. For example, items that the company covered in the past have henceforth, to be paid out of your own pocket. These may include such things as the purchase price and running costs of a car. Medical aid contributions generally double when the company ceases to pay its half thereof. These are high costs and tend to escalate at a far higher rate than the inflation rate.
Unless you move into a home that is less expensive to run, there is not much that is going to alter in your living expenses. Think about it. You will be working and earning a salary and then suddenly you will not be working. Which expenses will you cut?
That said, total regular cash outflows (as distinct from expenses) could in fact diminish. While working you are also saving and investing money – hopefully. After retirement those types of outflows cease because it might be a little silly to withdraw cash from one investment in order to pay an installment on another. Also, when you start to draw on your capital you will have less taxable income and so will pay less tax.
How much will you need in total savings and retirement funds to provide 70% of your final salary for 25 years? Let’s do a few very rough calculations.
Say the final salary is $15 000 per month so 70% is $10 500. Using our rule of thumb that $100 000 in capital will provide about $500 per month, we see that the capital required is $2,1m. Brace yourself. That amounts to 11.7 years worth of the salary at retirement.
We said earlier that there is likely to be between four and six year’s salary in the retirement fund so ideally, at least the same amount is required in other savings and investments. That means investing an additional 10% to 15% of income during the working years.
If your salary increases fairly sharply during your final working years before retirement it will probably be necessary to save an even greater percentage of income during those years. However, that should not be an impossible goal because at each increase you will not yet have the habit of spending the higher amount. Don’t develop the habit. Unless you are a nun habits are generally dirty bad things.
Possibly related posts: (automatically generated)
The Matter of Money for Saving Later
- Making Money at the Bank
- How to Give Away Your Money Like a Maniac
- Investment Borrowing
- More Sales Tricks continue...
- The Follow-up: What Do You Do, Or Not Do, for an Encore?
- How Banks Work with Your Savings
- Selling the Network Marketing Concept part 1
- Innovation is Universal
- Investment Tricks No One Will Tell You
- A Division Manager's Survival Guide
