Saving for a comfortable retirement – just how much is enough?

pensionsWe all understand the importance of saving for our retirement. The last thing we want is to work and toil throughout our lives, only to have to watch every penny when it comes to our retirement. When investing in a a pension, it is a good idea to have some idea of just how much money you’ll need to be comfortable; here’s our guide…

How much do you need to live on?

Trying to get an accurate idea of just how much money you’re going to need to enjoy a comfortable retirement is not always easy, after all, there’s no way of predicting how much items will cost, and what later life has in store for us all.

The first thing to consider is whether you will have paid off your mortgage by retirement age, or if you will still be forking out for dependents. Secondly, what sort of lifestyle would you like to enjoy. If, as an example, you think a yearly income of €30,000 will be sufficient, then this would give you €2,135 a month after tax (given today’s personal tax allowances). You then need to build a savings pot that will give you the buying power of €30,000 a year when you retire.

How big will your pension pot need to be? 

If you’re using a pension fund to provide your retirement income then you’ll need to consider the annuity rates you can expect. Currently, an individual with a pension pot of €100,000 will be able to buy an annual income of €5,800 a year. However, it is impossible to predict the level of annuity rates you can expect when you reach retirement age. Using these figures as an example, if you wanted an annuity equivalent €30,000 in today’s money, you would need a pension pot of €517,241. However, with inflation, the actual amount you would need in real terms would be far more.

 What return can you expect on your savings?

 For years pension fund providers have been overly optimistic when advising their customers about the returns they can expect on their investments. With the stock market currently in the doldrums and many economies unstable, it is now dawning on many people that they have not been saving enough to enjoy a comfortable retirement.

It is only in the past few years that pension funds have stopped promising growth in the region of 7 per cent. Now, with a portfolio that is spread across a wide variety of assets, it is far more likely you will receive growth of between 4-5 per cent per annum, which, when taking current inflation into account, gives a real rate of return of around 2.5 per cent.

This guide gives you some idea of why pensions are expected to become such a big problem for so many people in the future, and if you haven’t do so already, why it’s high time you started saving.

For further pensions information, please call our experienced advisers on 1890 917 917 today.