How to calculate what you need for retirement

The reminder to prepare for the future, particularly retirement, has been so overstated that it's become borderline nagging. Unfortunately, most people still shrug it off as premature. But, as with anything in life, preparation is the key to success, so it only makes perfect sense to start as soon as possible.

Do you know how they say that when it comes to your health, early detection is best? This advice extends to your financial health as well. When it comes to generating funds for your retirement, you will find that it is healthier and more manageable for your financial wellbeing to start when you're younger and able.

If you are serious about coming up with an investment plan for your future, here are some tips that could help you break down and calculate how much you will need for a worry-free retirement.

Step 1: Determine when you want to retire.

Figuring out your retirement age is the first thing you need for your computation. It is a rather contentious matter because you'll need to determine whether you want to retire young or not. The five years between 55 and 60, for example, can make a huge difference financially.

Retiring at 55

This age puts you in a more advantageous position physically speaking because you get more time to freely enjoy and reap the benefits of your life’s hard work. Although certain age-related conditions may already start creeping up on you, you would still be in generally good enough shape to continue with activities that interest you such as sports and travel.

Those who set their retirement age at 55 usually want to free themselves from life-long corporate bonds at the soonest possible time, allowing them time to seek the joy of wellbeing. However, you must be confident that you have enough financial safeguards to sustain your expenses throughout your retirement. Otherwise, it could be a bit more challenging and costly to retire early.

Retiring at 60 And Older

Some people delay their retirement for as long as they can. Nothing is wrong with retiring later. Everyone's circumstances are different. Perhaps they started planning a bit later or they still want to build their security. For others, being out of employment is out of the question because living costs, regardless of age, can still be burdensome.

The obvious advantage, should you delay your retirement to a later age, is that it’s going to give you more time to prepare for when you do finally retire. The longer you put it off, the bigger the output will be for your pension. So, while you may not have as much opportunity to do more of the physically demanding activities, you can still enjoy a lot of other alternatives such as light travel.

Step 2: Identify Source of Retirement Funds

If you’re running your own business, you need to determine how much income from it you’ll be getting, and for how many years this amount could sustain you. If you’re an employee, you might have a retirement fund as part of your company’s employee package.

Other possible sources could include pension savings, Social Security benefits, and insurance policies, for example. Some companies even offer stock and bond options that you can fully maximize when you retire. Upon identifying these funds, you can then have a projection of how much you’ll have for every year that you’re in retirement. Break that down even further by estimating your spending for daily costs. It’s a fair assumption that inflation rates would affect the prices in the future, so it’s best to compute for a higher cost of living.

Step 3: Calculate what you need

Inevitably, there will be a difference between your expected retirement income from your various fund sources and the actual retirement expenses. You need to learn this difference to have a clear picture of how much you will need to save for retirement.

For example, if your estimated annual expenses for your retirement is one million pesos and you have a PhP700,000 guaranteed income, that means you have a PhP300,000 difference or gap. This gap is what you will need to fill to complete your retirement fund. It can come from your savings or retirement fund, or even investments such as policies from FWD Life Insurance.

You then have to multiply this amount by the number of years you expect to be in retirement, to find out how much you may need to save up before you can confidently say you’re set for life. If you’re ready to make the computation, it’s best to consult with expert financial advisers before making any move. Schedule a financial planning session so you can properly plan for your retirement.

Whichever age you choose to retire, don't let sudden expenses hamper your retirement goals. Make sure that you have insurance plans that will financially protect you in case something happens. FWD has a variety of plans—Set for Health, KanMend, and Health Bundle— that will suit your needs. To know what suits you best, talk to our financial advisors. Schedule that session!

To know more about how you can achieve total wellbeing, click here.