How to Calculate What You Need for Retirement

Planning for your retirement may seem too far away at this point. But as they say, there’s no such thing as preparing too early. Here are some factors to consider when projecting just how much you’ll need to retire comfortably in the future.

by Mabie Algabate, 26 June 2017

The reminder for people to prepare for the future, particularly their retirement, is a cliché that is unfortunately not heeded as well as it should be. While most are still not taking this matter into serious consideration, because they think it’s way too early anyway, know that it’s actually what makes now the perfect time to get started. When it concerns the sustainability and consistency of generating funds for your retirement, you certainly would want to get started with your preparations as early as possible. Here are some tips that could help you better calculate how much you will need to for a worry-free retirement.

Retirement Age

The first thing you’ll need in order to have a viable computation is the age of your retirement. This is actually a rather contentious topic as it’s a huge question whether or not you can retire early. By early, it could be at 55 or 60. It’s just a few years apart, yes, but you’d be surprised at how big a difference these five years can make:

Retiring at 55

This age puts you at 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 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 do what they truly love. Unless you are confident that you have enough financial safeguards to sustain your expenses throughout your retirement, however, it could be a bit more challenging and costly, the earlier you retire.

Retiring at 60 and Above

On the other end of the spectrum are those people who opt to delay their retirement for as long as they can, so that they can better prepare for their future. For some, being out of employment is simply out of the question because the cost of living, even when you’re retired, 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.

Identify Source of Retirement Funds

If you’re running your own business, you need to be able 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 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.

Making the Calculation

Inevitably, there will be a difference between your expected retirement income from your various fund sources and the actual retirement expenses. You need to be able to determine this difference in order 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 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 own personal savings or retirement fund, or even investments such as those from FWD. 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. You can also use a retirement calculator such as EVO from FWD Life Insurance Philippines. Whichever retirement age you choose, at least you’re already taking the first step towards financial freedom when you retire.