As you picture the perfect life in your retirement what do you see?
Whatever you envision, be it finally being the farmer you were meant to be or just relaxing watching the expanse of the property you have acquired, you have to ask yourself how much will it cost for me to make that a reality?
How much is enough for retirement? How long does let’s say, Sh5 million… last in retirement?
When it comes to retirement savings, asking someone you how much savings they would need is like inquiring how long they think it will take to travel to a destination without considering all of the variables; where are they?
What mode of transport are they using and so forth? This is the same principle in posing the question how long will 5 million last in retirement.
There are many variables to consider.
What do you make right now?
Your current income is a useful starting point in calculation your retirement savings needs. The truth is that the more you make today, the more savings you will need in retirement stacked against your standard of living. But it won’t matter, because you will already be saving more in anticipation for the future.
How much will you collect from your pension scheme?
What kind of pay out are you expecting? Will you receive any defined benefit pension benefits during retirement? Will you opt for a lump sum or monthly payments? Getting a good estimate is invaluable as you plan your retirement and determine your savings need.
When do you intend to retire?
The sooner you retire, the longer you can expect to live during retirement. This means that you’ll need to have more saved. If you wait longer for retirement, not only will you be retired for a shorter amount of time, but you’ll also have a steady income for longer, meaning you can save more.
How many years do you plan to spend in retirement?
This is nicer, less intrusive way of asking the tough question — what do you think your life expectancy will be? Based on your health, family history and lifestyle you could spend 30 or more years in retirement. Figuring out how many years you will spend in retirement helps you figure out how much of your savings you will need to withdraw each year.
How of your savings will you invest?
If you invest well, you can expect a reasonably higher rate of return on your investments. This means you’ll have to save less compared to someone who insists on keeping all investments in their savings account. This is where having a pension outweighs having just a normal savings plan.
A pension can be invested on your behalf and so your money will be making money.
How much have you currently saved and how old are you?
The younger you are and the more you have saved, the less you’ll need to save in the future in order to achieve the same retirement standard of living as someone older or with less money saved up.
Remember the early bird gets the worm.
After considering all of these variables, only then can you determine how long five million shillings will last in retirement.