Since the ideal age to begin saving for retirement is twenty-five, it’s scary to think that most of the people I’ve spoken to only began considering retirement planning in their mid-to-late forties and fifties.
An even scarier fact is that more than 50% of people between the ages of fifty and sixty-five have no retirement savings at all and, among those who have retirement savings; over 70% of them will exhaust their savings completely before even reaching half of their retirement period. The current statistics are absolutely shocking but the ignorance associated with retirement is even more so.
When someone asks me roughly how much they would need to have a comfortable retirement they’re usually really surprised to hear the final figure that I give them. I know they’re nowhere near where they should be, if we consider their age and current income – so I’m never surprised to see them cringe and try to either change the subject or come up with a whole list of excuses and reasons for why they either can’t or don’t need to save that much.
The ignorance that most people harbour when it comes to retirement savings is amplified by the fact that they truly believe that they will be able to work well into their seventies to make up for their lack of savings. I know that an extended working life is mostly valid only for those who are already high earners because that it’s those very same high earners who will benefit from all the medical advancements made over the past twenty years and therefore be healthy enough to be able to continue working. Getting old means that your health and, probably that of your significant other will decline, medical bills will pileup and your ability to work will be hampered but, health is not the only factor that reduces our ability to continue working. Older job seekers will inevitably struggle to find work, with employers looking for younger people that will be able to work for many more years to come without the problems usually associated with older, less flexible employees. They may have more experience but companies simply don’t want to take the risk of employing someone who won’t be able work for more than five years. This is usually the reason that older employees that are lucky enough to find work will have their previous wages cut by at least a quarter.
Even those who do come to terms with the fact that their current savings and indeed their future savings, or lack thereof are simply insufficient most do nothing to improve their current savings. Why is this? There are many reasons that people put off retirement savings and this varies from struggling to pay off cars, homes and other loans to having more than one child in college or university. It’s already hard enough without having to take a chunk out of your current income to make up for the lack of savings. That’s why retirement savings should be looked at as a necessary monthly expense – not something that can happen every other month – it needs to happen early on and needs to be consistent.
Comfortable Retirement – Rule of thumb
So how much is enough? Obviously the amount of financial wealth that we need to have to ensure a comfortable retirement varies wildly based on location, standards of living and whether or not you have supplemental sources of income. Having a paid-off home means you will need less but the general rule of thumb is that we need to save twenty-times our net annual income to have a comfortable retirement.
Retirement is not a popular topic amongst most age groups but the simple fact of the matter is that it definitely should be high on our priority list from the moment we begin earning regular pay checks – usually in our mid-twenties.
A person who begins saving for retirement at twenty-five will have more than twice the savings of someone who begins saving the same amount at age thirty-five however, most of the youngsters I know have a list of expenses and priorities that leave absolutely no space for early retirement savings.
Don't delay your retirement fund
Another gloomy reality is that most people have absolutely no intention of opening a retirement savings account any time in the near future because they either believe it’s too late anyway and they’ll just have to make do with the income from social security and probably down-size or sell their homes or, they live under the impression that they’ll be able to work well past the average retirement age.
So let’s assume you’ve planned out and saved just the right amount– in order to ensure these funds last well into your retirement you have to stick to certain rules. Firstly, no more than 4% should be withdrawn in any single year. Secondly, if unforeseen expenses are incurred this percentage needs to drop to ensure that the amount is ironed out and thirdly you cannot make any withdrawals prior to your planned retirement date – not very realistic for most but unfortunately no amount of planning will ever ensure your financial security 100% but, we need to do our best don’t we?
In order to save adequately you need to make certain assumptions and base your goals on these assumptions. This means that you need to have an idea of at what age you’ll be retiring, what your monthly expenses will amount to and basically how long you’re going to live. Retirement calculations have received an incredible amount of criticism for being too rigid and crude – basically forgetting the very nature of humanity – the fact that lifespan is for the most part as unpredictable as health and emergency expenses are simply a reality most of us have to deal with but the fact remains that without a plan we simply have no goal to work towards.
Plan your retirement, yourself!
Most of the individuals, who are investing via an employer-sponsored scheme, are under the false impression that they will be safe in their old age because they don’t make accurate calculations that will almost always show that this income will simply not be enough to maintain their current standards of living and that supplemental income is necessary to maintain a similar standard.
So if these are the circumstances surrounding retirement then why are so many people‘s retirement accounts almost empty? The simple answer - ignorance – the idea that they’ll be more than capable of working into their into their late sixties and seventies has most people allocating the crucial funds they’ll need in their old age to other seemingly more important expenses.
We all need to start taking retirement savings a little more seriously and realise that we can’t rely on employer sponsored retirement schemes or social security to be enough. We have to have a plan that guarantees additional income on top of social security and a retirement account with guaranteed returns and annuity payouts is the most secure way to plan for a comfortable retirement. The sentiment I’d like to leave you with is that I guarantee you that ten years from now you’d wish you had started today.