Save? Spend? Or both?  The desire to prepare for the future and save versus the impulse to live for the present and enjoy earnings now. People know that there are no guarantees for tomorrow.  But they also don’t want to live out their retirement years with limited choices, or none at all.Chances are you’ll live well past retirement age, meaning you could run out of money if you’re not prepared. That means you’ll need a savings plan.  When the best time to get serious about starting your retirement is, the answer’s simple: right now. Regardless of your age, saving for retirement is crucial financial move.  At least until you have enough to cover your living expenses for every year you’re not working.

How much do you need to save for retirement? This question is one of the most important ones you need to answer to take charge of your financial future.  You need to ensure you retire with enough savings to provide an adequate pension.

Don’t assume that because you contribute to a fund, or you contribute to a retirement annuity (RA), that you are on track for a comfortable retirement.

Check for yourself or ask your adviser, what you will receive as a monthly pension in retirement.  If you will be living off investments in a living annuity, for how long these are likely to provide that pension.

How big your nest egg should be?  How long it will last, will depend not only on what you save and invest, but also on how you spend it once you do retire. . Here are some of the factors to consider as you determine what your unique savings goal should be.

First know where you’re starting from

They say you can’t get where you’re going if you don’t know where you are. Applied to your finances, that means taking a look at two key metrics: your net worth and your cash flow.

Your net worth is the sum of all your assets minus your liabilities. Assets such as:  savings, investments, real estate or other valuable possessions. Liabilities include student loans, credit card debt, a mortgage or any other money you owe.

Next take a look at your monthly cash flow.  Look at your income. How much is going in and how much is going out. What you’re looking at is whether you have a little extra cash in your budget to set aside for retirement.

Your goals

When you start calculating what you need, you first need to set your retirement goals. How much income will you need in retirement? When you think about this question, consider the following:

  • Will you have paid off all your debts, such as your home loan?
  • Will you still be supporting dependents? Such as your children or other relatives who rely on you for their living expenses.
  • Where will you live? Will you downscale your home, making the cost of living cheaper?
  • What will you save on transport costs or the cost of owning a car or more than one car when you are no longer working?

Answering these questions will help you determine what percentage of your current salary you will need to meet your expenses in retirement.

Work backwards to figure it out

Many retirement experts say that the average person will need to replace 70%-80% of their income in retirement. Some expenses will fall away, such as work-related costs.  Yet there may be other expenses that go up, such as travel, entertainment, and even shopping. In other words, don’t assume you’ll spend less money across the board. Think about the retirement you’d like to have. The costs related to the activities you intend to pursue and budget them in.

A rough guide

Financial services companies suggest you should have between 15 and 17 times your final annual salary (before tax) in the year you retire to provide a pension equal to 75% of the salary.

Follow these suggestions and you’ll soon find you have money for both your current needs and your long-term goals.

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