Wouldn’t we all love a definite answer to this question? The short answer is that there isn’t one – it all depends on your specific financial goals. If you don’t know where to start, then it’s a good idea to speak to a financial advisor. He/she will use his/her expertise to help you draw up a financial plan that is tailored to your needs and match it to the best financial investments available.
However, here is some advice to help you plan for retirement.
Try to save 75% of your final salary
A reputable financial advisor should tell you that for you to live comfortably, it’s best if you aim to have an income that is equivalent to 75% of your salary. This amount is based on adjustments that many people are likely to make as they get older such as increasing health expenses.
However, this ‘rule’ doesn’t account for every individual. It omits to take into account your health, plans or lifestyle expectations. It also doesn’t tell you how much you need to save. Therefore, it’s important to have a comprehensive understanding of your personal financial goals.
You need to put away at least 17% of your salary from age 25
The above statement is based on the assumption that living off 75% of your pre-retirement salary is feasible. However, that amount may not be possible for all young adults.
Nevertheless, it’s a good idea to start becoming disciplined with your money and not spend it recklessly. This will go a long way to ingraining a rational mindset that sets you on the right path.
Remember to account for lifestyle inflation
Should you be lucky enough to receive a salary increase, it’s important to keep a level head and think rationally. The allure of a new car, a bigger house, and other luxuries is tempting, but this instant-gratification mentality, won’t serve you well in the long term.
Instead, contribute the extra money to your retirement savings.
Here are some top tips that will potentially help increase your retirement savings
- Prioritize your retirement savings when you get additional income. In the long term, it’s a much better decision to put any additional income towards saving for retirement instead of spending it.
- Possibly, delay retirement so that you can give your investment more time to grow both through your contributions and return on your investment.
- Lessen your income requirements by re-thinking your lifestyle priorities and try to implement changes that will allow you to contribute more towards your savings.
- Consider supplementing your retirement savings with additional options such as saving in a tax-free investment account or a unit trust, which both give you more flexibility and easier access to your investment.
- Consider getting advice from an independent financial advisor if you are uncertain how much you should be saving. He/she will be able to help define your financial objectives and draw up a realistic plan of how to achieve them.