This week I celebrated my 51st birthday, and it got me thinking of a question that I am often asked, usually as a passing comment when people know what I do: how much do I need for retirement?
Although it’s a simple question, the answer is complex. However, the clever folks at Fidelity have done some research, and their views can act as a useful barometer for your retirement planning.
It depends on when you want to retire, and what you want to do when you get there, but Fidelity have come up with a factor which will certainly help you benchmark yourself against their research.
They found that at age 30 you should have one times your salary in retirement funds; at age 35, two times; at 40, three times; 45 four times; 50 six times; 55 seven times; 60 eight times; and when you reach 67, 10 times. Now look at your retirement funds. How do you compare?
Remember this is a generic starting point to give you a guide – it’s not an absolute. But if you’re way off, it may be worth giving your retirement funding some attention. My own view is that you’re unlikely to want less than these factors of your salary, and it’s very probable you’ll want more.
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I have a saying that the best time to start investing was yesterday, the second-best time is today. So why not make a commitment as the new tax year begins to start saving more into your retirement fund? In my book The Money Plan, I recommend you keep the first working hour of your day for your future.
If you work an eight-hour day, that’s the first 60 minutes of your income going into your pension. That works out as 12.5% of your salary and should be your minimum goal.
If you saved 12.5% of your income into your workplace pension, your employer would be adding at least 3% so you’ll have a comfortable 15.5% being invested for your future self.
Think of it simply as transferring some of your income now to provide you with an income later, when you will need it most.
We have two driving emotions influencing our decisions in life: pain and pleasure. If we link pension contributions now with the pain of having less to spend, rather than seeing the future of a healthy, wealthy retirement, we’ll never get ourselves over the line to make sizeable contributions.
If you ‘can’t see the point’ because it’s so far ahead I recommend two courses of action. First, spend some time to design your retirement: make a list of places you want to go and people you want to see. Second, make it so compelling that you want it now!
Many people don’t save for retirement until it’s too late.
They then become motivated by the pain of the continued grind of work, and the pleasure of retirement as a means of escape. By then it’s often more difficult to achieve because you have less time to build your pot.
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