How Much Do I Need To Retire With Pension

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Rely More On Investments Than Benefits

How Much Do I Need to Retire? Retirement Planning 101

Your liquid savings probably wont be your only assets when you enter retirement. Any employer-sponsored savings youve accrued can significantly supplement your retirement savings, and other nest egg investments you might have like annuities or CDs can also help when you retire.

Experts advise that with current and forthcoming Social Security trends, its not wise to rely solely on Social Security benefits to fund your retirement. If you are looking to further build your portfolio or want to start investing, explore safe, high-return investment options.

What Is The Average We Would Like To Retire On In Ireland

As we mentioned above, 50% of your gross pre-retirement salary is a good starting point. If we assumed we retired at 66, that would give us our 22,100 over 19 years equating to 353,600 total.

During our survey earlier this year, we found respondents wanted to have an average of 433,000 in their pension pot at retirement. Therefore, our figure of 353,600 is quite conservative.

Although, the aim of this blog is not to deep dive into pensions, it is likely the only way the majority of us would get close to having this amount in retirement.

A combination of tax relief and tax-free growth makes a pension the ideal vehicle to help you save for retirement.

However, pensions are not the answer to all our questions. Worryingly, take upon pensions is still quite low in general.

With auto-enrolment still a number of years away, this may be slow to change. Although most of us agree pensions are a good idea, the overall take-up rate is approximately 60%.

This means 40% of our population are planning to retire and live off the state pension of 248 per week.

As inflation increases and we live longer, healthier lives than ever before, it is a worry for the government that a large chunk of the population intends to live on 35 per day.

That is without us going into the state pensions liabilities and the fact Ireland has an aging population. All the above factors will play a role in how much you will need to retire.

How Is Retirement Income Impacted By Social Security

Your Social Security benefits can help you with your retirement income planning. Monthly benefits depend on how much money you made in your lifetime and paid into the system. If you wait until full retirement age to collect, you get your full benefit amount. You can choose to start receiving Social Security earlier, but your benefits will be reduced. If you put off receiving monthly payments until later, your monthly payout will be larger.

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How Our Retirement Calculators Can Help

Meet Mac. Hes 51, married and planning to retire at age 65.

To work out how much Mac might need in retirement, he tries our retirement needs calculator. Mac is hoping for a comfortable standard of living in retirement, and our calculator estimates this will cost him $1,154.49 a week or $60,033 a year. Hes also planning on buying a new car and doing some travelling once retired, and thinks hell need $40,000 for these one-off expenses. Based on a life expectancy of 81 years, our retirement needs calculator estimates hell need a total of $993,473 to fund his retirement.

So how much might he have in retirement, and how long is his money likely to last, based on his current and expected financial situation?

Mac uses AMPs retirement simulator to find out. Mac currently has $172,000 in superannuation invested in a balanced investment option, an annual pre-tax salary of $82,000, shares worth $20,000, and the couple owns their family home. Based on this information, our retirement simulator calculates hell retire with savings of $294,944. Based on his expected expenditure in retirement outlined above, our retirement simulator estimates his money will only last until age 71, leaving him with a funding shortfall of 10 years in retirement.

While this news may seem scary, its not an uncommon situation. Luckily, finding out about the possible shortfall now means there may still be ways to boost his savings before retirement.

What do you do if you wont have enough to retire?

How Much Is Enough For Retirement

Average Retirement Savings By Age

The Association of Superannuation Funds of Australia estimates that Australians aged around 65 who own their own home and are in relatively good health, will need the following amount of money each week and year in retirement1:

A modest lifestyle is considered better than living on the age pension, while a comfortable lifestyle means someone can afford a good standard of living, be involved in a broad range of leisure and recreational activities and travel domestically and occasionally internationally2.

For Australians on above-average incomes, another rule of thumb to estimate how much money youll need in retirement is to assume you will require 67% of your pre-retirement income to maintain the same standard of living3.

Recommended Reading: Harvard University Defined Contribution Retirement Plan

How Much Does A Couple Need To Retire

Much like an individual, how much a couple needs to save to retire comfortably will depend on their current annual income and the lifestyle they want to live when they retire. Many experts maintain that retirement income should be about 80% of a couples final pre-retirement annual earnings. Fidelity Investments recommends that you should save 10 times your annual income by age 67.

How Much Is Enough

How much extra money you contribute to your super depends on what youll need to live off once you leave work. The amount of super you need depends on:

  • How long you live
  • What type of lifestyle you want
  • Future medical costs

The table below will give you a rough idea of how much money you need to support a modest or comfortable post-work lifestyle. The table also outlines different categories and the type of lifestyle youll be able to live. It applies to people leaving the workforce at age 65 who will live to an average life expectancy of about 85.

Recommended Reading: How To Maximize Your Retirement Income

Life Expectancy In Ireland

The increase in life expectancy is higher than ever and this is an amazing outcome of a more modern society with improved healthcare, nutrition, social protection and social care. We can now confidently predict that we will live longer than our parents and grandparents. However, it comes with the added burden of planning to have an income to provide for our lifestyles during these years.

Between 1960 and 2019 data reveals that life expectancy has increased by an average of 12.5 years. This jump in our life expectancy needs to be budgeted for. While the State will provide a basic income for all retired people in the form of the State pension, generally this will not be enough to provide for the cost of living. At 253.30 per week, it is designed to be a basic income to cover fuel, food and essential provisions. It is not designed to match the costs of your usual lifestyle while working. For this reason people take on a private pension plan to supplement this payment. Very often your cost of living can increase in retirement, especially if you plan to travel regularly.

How To Make More Money With Your Pension

How Much Do You Need To Retire | What The Experts Say

Well, now that youve an idea of the figures involved you need to make sure that your pension is set up to succeed.

The structure of your pension fund is critically important.

Most people who have their money with Irish banks, tied agents and other advisors arent set up to succeed.

Thats because they have a limited array of choice and are investing into contracts with very expensive charges.

Its the equivalent of owning a 4 speed car with a leaking petrol tank.

The best pension plans in Ireland are made of the highest quality components in a low cost structure.

At The Pension Store, we can get you the best of everything by

  • Showing you how to manage your money like a professional investor
  • Offering you access to the best solutions available on the Irish market
  • Building portfolios that can deliver the results you need
  • Ensuring that you dont make the common mistakes that others make
  • Freeing you from the avoidable charges that stunt your growth potential
  • Its important to do everything you can to maximise your retirement fund and if you want some further reading then there are some valuable tips contained in the article 7 Reasons Why Your Pension Fund Isnt as Big as it Should Be

    Book a complimentary consultation directly into my calendar as a company director, self employed professional or company employee and well take it from there.

    Kevin

    Recommended Reading: Best Stocks To Invest For Retirement

    Your Timeline To Retirement

    Just like what type of lifestyle you are expecting in the future can affect how much you need to save, so too can your timeline to retirement.

    Your timeline to retirement or the time left between your current age and at what age youd ideally like to leave the workforce can have a large impact on whether or not youll be able to achieve the post-work lifestyle youve always dreamed of or whether you may need to rethink your expectations for what your ideal retirement may look like.

    For example, if you are in your mid-to-early-20s and are expecting to leave the workforce around the age of 60, you have ample time to implement good savings habits that will ensure youre able to achieve your dream future lifestyle. However, if you are in your 40s or 50s and are expecting to leave the workforce around 65, this leaves less time for you to implement the number of financial strategies or wealth creation techniques that can assist you in achieving a comfortable retirement lifestyle.

    Your timeline to retirement can also affect the other strategies you may choose to utilise when working towards achieving the amount you need for your ideal post-work lifestyle. For example, if you are closer to your desired retirement age, you may have to voluntarily contribute higher amounts of your income to your super to ensure youre able to achieve your post-work income goals.

    Book Your Free Consultation with Our Retirement Advisor

    Retirement Savings Confidence By Age

    Anxious that you aren’t saving enough for retirement? You’re not alone. As of 2021, there were roughly 60 million active 401 participants, in addition to former employees and retired adults. And while they may be active participants, peoples feelings toward retirement vary widely based on age.

    According to the 2022 Investopedia Financial Literacy Study, the majority of adults expect that they will be able to retire. Among those surveyed, 57% of Generation Z and 62% of Millennials expect to retire. Nearly 66% of Generation X have such expectations.

    Younger adults, ages 18 to 25, are most optimistic about retiring earlymost of Generation Z believe they will retire by age 57.

    Those are rosier numbers than what was found in the 2021 data from Natixis Global Retirement Index, which indicated a majority of adults expected to work longer than expected with about 40% saying it would take a miracle for them to retire comfortably. It is possible that data was impacted by anxieties around COVID-19 related economic instability.

    In Investopedias study, not all adults are particularly confident in their understanding of retirement planning. Behind digital currencies and investing, retirement was the third least-understood concept. And retirement was the top personal finance concern for about one-sixth of all those surveyed.

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    How To Calculate Your Target Retirement Income

    The basic calculation of the amount youll need is two-thirds of your previous annual income. This method assumes youll need less than when you were working because you will not have a mortgage or rental costs.

    Of course, if you still have these payments to make, youll need a higher retirement income.

    However the amount of money you need will depend on the kind of life you want and expect when you retire: simple or lavish?

    The Money Advice Service has an online calculator to help you work out how much retirement income youll need.

    How Do Benefits Work And How Can I Qualify

    How Much Do You Really Need To Retire

    While you work, you pay Social Security taxes. This tax money goes into a trust fund that pays benefits to:

    • Those who are currently retired
    • To people with disabilities
    • To the surviving spouses and children of workers who have died

    Each year you work, youll get credits to help you become eligible for benefits when its time for you to retire. Find all the benefits Social Security Administration offers.

    There are four main types of benefits that the SSA offers:

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    Should I Take My Social Security At 62

    The minimum age to claim benefits is 62. 1 If you are turning 62 and need the income from Social Security to support yourself, then you can start claiming your benefits now. However, if you have enough other income to keep you going until you are older, you may want to delay increasing the size of your monthly benefit.

    Also Check: Health Care Costs In Retirement

    When You Plan To Retire

    The age you plan to retire can have a big impact on the amount you need to save, and your milestones along the way. The longer you can postpone retirement, the lower your savings factor can be. That’s because delaying gives your savings a longer time to grow, you’ll have fewer years in retirement, and your Social Security benefit will be higher.

    Consider some hypothetical examples . Max plans to delay retirement until age 70, so he will need to have saved 8x his final income to sustain his preretirement lifestyle. Amy wants to retire at age 67, so she will need to have saved 10x her preretirement income. John plans to retire at age 65, so he would need to have saved at least 12x his preretirement income.

    Of course, you can’t always choose when you retirehealth and job availability may be out of your control. But one thing is clear: Working longer will make it easier to reach your savings goals.

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    Retiring In Hawaii Using The Cost Of Living Index Method

    Retirees may use the Cost of Living Index interactive tool provided by The Council for Community and Economic Research to make accurate and reliable cost of living comparisons between their current area and any participating cities across the United States.

    Hawaii, according to Sperlings Best Places, has a cost of living index of 170. The U.S. average is 100 and any amount below 100 indicates a cheaper area. An index above 100 means it is more expensive. The median home cost in Hawaii is $732,000. Each aspect of living in Hawaii, ranging from groceries at 150 to housing at 268, has a high index. The only exception is healthcare with an index of 94.

    Those who plan to rent in their retirement years should also anticipate paying a higher rent than most of the United States. Rent for a Hawaii studio currently averages at $1,457 a month while a one-bedroom is priced at $1,609 a month. This compares to the average U.S. studio and one-bedroom .

    Take Our Poll: Do You Think You Will Be Able To Retire at Age 65?

    How Much Do I Need To Save Per Month To Hit My Pension Goal

    How Much Retirement Do I Need?

    How much money you need to save per month depends on when you actually start saving and how much you want to save in total.

    The earlier you start adding to your pension pot, the less you will need to save each month because the cost is spread over a longer period.

    Moreover, if you start saving early, your funds will accrue the extra benefit of compound interest throughout the duration of your savings. Making money from the interest means you can actively save less and still end up with the same amount.

    Recommended Reading: Social Security Taxes In Retirement

    Ways To Improve Your Retirement Roadmap

    Is your retirement plan headed in the right direction? If you’re feeling lost about how to save for the retirement you’ve always dreamed of, it’s not too late to get back on track.

    Here are five simple ways you can improve your retirement roadmap no GPS required.

    1. Revisit your investment portfolio.

    Whether you’re working with a financial professional or managing your retirement accounts on your own, it’s a good idea to regularly review your investment strategy to make sure that it’s meeting your retirement objectives.

    2. Take advantage of maximum contributions.

    If your finances allow it, contribute the maximum to your retirement plans every year. By doing so, you’ll increase your long-term investment potential. Remember, if you’re age 50 or older, you can contribute extra money to your retirement accounts each year. These are called catch-up contributions.

    3. Meet your employer’s match.

    Not taking advantage of your employer’s matching retirement plan is like saying no to free money. Find out what the minimum contribution is for you to be eligible to receive a company match. If you’re not sure how your plan works, speak with your company’s benefits representative.

    4. Take advantage of automatic retirement plan features.

    5. Know when to recalculate your retirement directions.

    There are many events in life that can have a significant impact on your retirement planning strategy, including:

    What Are The Next Steps

    Whether you are considering early retirement or trying to figure out how much you need ro retire, a chat with someone experienced in similar dealing is never a bad idea.

    Our advisors have vast experience in all areas of retirement planning and would be happy to assist.

    Should you choose to contact us or not, hopefully, this blog has provided you with clarity. Retirement planning is often a complex area with many aspects needing to be considered.

    Therefore, it is important to take your time and assess all potential options.

    We also have a guide to retirement planning which you may find useful. If anything is still unclear, feel free to contact our team. We would be happy to help.

    Thanks for reading!

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