Ensuring that you have enough money saved in your pension and other savings accounts to live comfortably when you retire is not a straightforward formula because the calculation involves a certain degree of variables. However, with careful consideration and a prudent savings strategy, you can plan accordingly to help you to reach your savings goals by the time you retire.
The key is to start saving early.
Calculate your expenses
Financial experts suggest that a retiree will need anywhere between 70 and 85 percent of their final salary upon retirement to fund their living expenses once they retire. The first step in trying to pinpoint this figure is to ascertain what your annual expenses will be once you retire.
Some questions to ask yourself:
Will you still have a mortgage that needs to be paid?
Do you intend to retire quietly at home or do you envision travelling round the world?
Will you need to help take care of the expenses of an elderly parent?
Do you have high healthcare costs such as health insurance that will need to be maintained (or even increased) during retirement?
These are all important factors that play a significant part in determining your overall expenses. Once you have taken a good look at what you will need to pay for during retirement, you can assess if your current savings levels will meet your expense requirements.
How big is the pot?
Many factors will impact the amount that you will have saved at retirement, all of which you need to take into consideration when assessing if you will have enough money to meet your needs. For example, the earlier you started saving via your pension plan, the more you will have in retirement. The longer you delay starting to save, the harder it will be for you to reach your retirement goals.
Luckily, contributing to your pension account is mandatory in the Cayman Islands, but there are other ways to add to your account with AVCs (Additional Voluntary Contributions).
Your retirement age is another factor to take into consideration: the longer you remain in employment the less you will need upon retirement and the more you will be able to contribute to your pension plan. How much you can afford to save each month and what type of returns you are earning on your pension and other savings are also important factors to think about. It’s smart to invest with a pension such as the Chamber Pension Plan which offers tailor-made solutions for its members called Lifecycle Funds that reflect your changing needs throughout your working life by automatically adjusting the combination of assets they invest in based on your age, which in turn can reflect your evolving investment needs and goals. It is also prudent to save at the highest levels possible.
At the end of the day it is not easy to quote a single number that will determine how much money you need, because everybody’s situation is different. If you can take a good assessment of your financial needs before retirement, ensure you undertake careful planning and prudent saving, then you can better plan to help reach your savings goal.