How Much Would You Need in Retirement?

Retirement is a reality that would come for everyone at the appropriate time. The best approach anyone can take toward retirement is proper planning which is tailor-made and personal to the individual. Hence, a customized pension plan for every individual begs the question “how much you need to retire comfortably?” The response to this question will differ for everyone. While there is no magical amount as life contingencies are very much unpredictable, there are however some questions you can ask yourself to determine your optimal amount.

Certain things to consider when considering how much you need for retirement include:

  • Basic Needs:  Identify your monthly necessities and estimate how much they would gulp from your retirement benefits. These items include feeding, rent, utilities, vehicle paper renewals and other expenses.
  • Lifestyle & Luxuries: You should define specific desired luxury activities and estimate their approximate costs based on frequency, items needed or any other related cost input. These costs should be added to your budget. Examples of these luxuries can include hobbies, a vacation, buying a boat, and traveling.
  • Number of Dependents: This is a crucial factor to consider when determining an amount that could be sufficient for you during retirement. Dependents here refer to the number of people who you cater for by paying more than 50% of their support. Usually, your spouse and children constitute the major dependents.
  • Inflation: What you purchase for N100 today will obviously not be available at the same rate 2 years later. One way to avoid inflation eroding your retirement savings is by investing them in investment securities whose return are higher than inflation rate. Experienced Fund Managers usually have plenty of information available to help establish a reasonable inflation estimate, but 9 – 12% is a good long-term inflation number you can use for your computations.
  • Life Expectancy: The question of how much you will need for a comfortable retirement will depend largely on your cost of living and lifestyle choices vis-a-vis life expectancy which no one can predict accurately. Although the current average life expectancy is about 54.5 years (according to the World Health Organization), educated employees constitute the bulk of people who live far beyond this due to their level of awareness and location.
  • Pension Plan: You need to assess how much you have in your pension savings account and estimate if what you have accumulated is enough to make your retirement dream a reality.
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You would need to sit down with an experienced financial advisor like ourselves who would put all the above-mentioned variables into perspective to ensure you have adequate savings for your retirement.

When do you stop saving?

The saying that no amount of money is ever enough for the human, tends to make the question of when to stop saving a rhetoric.  It is a financial reality particularly in retirement. Consider an individual who started saving for retirement early enough to take advantage of the time value of money, this same person is debt-free and has other personal investments. The general rule of thumb will be that it is safe for the individual to stop saving and start spending since he is debt-free and his retirement benefits alongside return on investments can cover his expenses plus inflation.

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Unfortunately, the situation above assumes certainty and generality of several factors for all individuals. Below are highlights of some of these factors that determine everyone’s response relative to another:

  • Making money to last through retirement is an increasing problem, largely because life spans keep changing.  This uncertainty suggests that there is no right time to stop saving and engage only in spending as emergencies may come up to erode your accumulated funds. For example, old age comes with regular healthcare needs and your inability to rely on your own income for treatments may be detrimental to you.
  • Another key factor is the lifestyle of an individual. It might be possible to tell yourself that you have enough to stop saving for retirement. The question of when depends on the lifestyle you want in retirement; where you want to live and what you want to do during that period and any unanticipated lifestyle changes that can increase your retirement expense.
  • The number of dependents you have goes a long way to determine how sufficient you feel about your retirement savings. Having no dependents gives more room to stop saving early provided you do not anticipate a change in such status.
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