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You probably have many questions about saving
for your retirement. For example, how can you know how much to save
when you don't know how long your savings will need to last, how
much you will receive from other income sources and what your expenses
will be once you've retired?
To get a general ideal of how to handle
these questions, follow these easy steps.
1. Estimate how much your
expenses will be at retirement.
Most experts agree that your retirement
expenses will be 30% lower than when you were in the work force.
So if your monthly expenses while you are working are $1,000, they
will probably drop to about $700 after you retire. The 70% recommendation
assumes that housing costs will go down (because mortgages generally
get paid off), as do transportation and clothing costs. However,
some costs, like medical expenses, tend to go up. And if you are
looking forward to extended trips or moving to a more expensive
city/country before retirement, your lifestyle could get much more
expensive.
2. Estimate how long the money must last.
In the United States the average male's life expectancy is 71, the
average female's life expectancy is 75. (The table below shows life
expectancy based on when you might retire.)
|
Life
Expectancy at Retirement in Years |
Retirement
Age
|
60 |
61 |
62 |
63 |
64 |
|
Male |
17.51 |
16.69 |
16.08 |
15.38 |
14.70 |
|
Female |
21.25 |
20.44 |
19.65 |
18.38 |
18.08 |
17.32 |
Source: USA Census Bureau 2004
Life
Expectancy in Latin America by Country 2004 |
Country
|
Men |
Women |
| Argentina |
71 |
78 |
| Bolivia |
61 |
64 |
| Brazil |
67 |
75 |
| Chile |
73 |
79 |
| Colombia |
69 |
75 |
| Costa Rica |
76 |
81 |
| Cuba |
74 |
78 |
| Dominica |
75 |
81 |
| Dominican Republic |
67 |
70 |
| Ecuador |
69 |
75 |
| El Salvador |
67 |
73 |
| Guatemala |
63 |
69 |
| Honduras |
67 |
74 |
| Mexico |
73 |
78 |
| Panama |
72 |
77 |
| Paraguay |
70 |
74 |
| Peru |
68 |
72 |
| Uruguay |
72 |
79 |
| Venezuela |
70 |
76 |
| Nicaragua |
66 |
71 |
Source: 2004 World Population Data Sheet. Population Reference Bureau With
the above information you can select a retirement age for you and your
spouse and plan how much time you will live as a retiree.
3. Multiply your estimated
annual expenses at retirement by the years you can expect to live after
retirement.
It may help you to know how much money it will take to live
out a long retirement. Here are some examples of how long your savings
might last based on the monthly expenses you will have at retirement.
How
much savings do I need for retirement?
Years
in Retirement |
Monthly
Income
(USD)
|
2
Years |
5 Years |
10 Years |
15 Years |
20 Years |
| $1,000 |
$22,900 |
$53,300 |
$94,700 |
$127,000 |
$152,200 |
| $2,000 |
$45,800 |
$106,500 |
$189,400 |
$254,000 |
$304,400 |
| $3,000 |
$68,700 |
$159,700 |
$284,100 |
$381,000 |
$456,500 |
| $4,000 |
$91,600 |
$212,900 |
$378,800 |
$508,000 |
$608,700 |
| $5,000 |
$114,500 |
$266,200 |
$473,400 |
$635,000 |
$760,800 |
| $6,000 |
$137,400 |
$319,300 |
$568,100 |
$761,900 |
$912,900 |
| $7,000 |
$160,300 |
$372,500 |
$662,900 |
$888,900 |
$1,065,100 |
| $8,000 |
$183,100 |
$425,700 |
$757,400 |
$1,015,900 |
$1,217,300 |
| $9,000 |
$206,000 |
$478,900 |
$852,100 |
$1,142,900 |
$1,369,500 |
| $10,000 |
$228,900 |
$532,200 |
$946,800 |
$1,269,900 |
$1,521,600 |
Based on 5.0% annual yield compounded quarterly on your savings
with periodic monthly withdrawals. Investment performance can dramatically
affect these numbers. Inflation can also seriously affect the value of
the withdrawals. Rate of return is hypothetical and does not represent
any specific investment or imply guaranteed results. Amounts shown do not
reflect the impact of taxes on earnings. Your actual return will vary depending
on your investment and your tax condition in your country.
4. Select a financial plan according to your specific
sets of circumstances.
Once you know how much savings you will need at your desired retirement
age, and the number of years you have to save for retirement, customize
the plan which
best fits your situation.
Keep in mind that these suggestions and guidelines will only give you
a rough idea of how much you need to save for retirement. Consider the
lifestyle you want to have after retirement. Do you plan on traveling?
Will you own your own home? The amount of money you will need to save will
be affected greatly by your answer to these types of questions. As you
can see, it pays to start planning and saving for retirement early in life.
That way, your golden years can be the best years of your life.
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