Facts vs Reality: How much do you really end up saving for retirement?


Dubai: Retirement experts have offered various rules of thumb about how much you need to save, be it somewhere near Dh1 million, 80 to 90 per cent of your annual pre-retirement income or 12 times your pre-retirement salary. But what’s right for you? And how do you know you’re on track?

Because there are so many variables, even the retirement researchers can’t agree on a total amount. What each person needs will vary widely based on a number of factors.

Will your savings be enough for the retirement income you’ll need?
You may be surprised how much — or how little — even generously-sized accounts could potentially provide over the course of a retirement. The examples below illustrate how much a 65-year-old can safely withdraw in the first year of retirement.

If you have saved up Dh300,000 at age 65, then that implies your annual retirement income from savings is Dh12,000 per year. If you have saved up Dh1 million, annual retirement income from savings is Dh40,000 each year. If the value of your savings at age 65 is Dh1.5 million, your annual income from savings is Dh60,000 a-year.

Just how big your nest egg should be and how long it might last will depend not only on what you save and invest, but also on how you spend it once you do retire. Here are some of the factors to consider as you determine what your unique savings goal should be.

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Base your retirement savings estimate on what you expect to spend

Experts say that having a percentage amount to give you a rough idea for planning can be helpful, but you can’t be focused solely on that. With everybody’s lifestyle different, what they want to do in their retirement years may be very different as well. Rather than rely on a general figure, they suggest trying to create a ballpark annual estimate based on what you live on now and what might change when you retire.

How will you spend your retirement money?

Here’s what statistics show on how people today generally spend their money as they near retirement, according to a survey of those aged between 50 to 85 years and beyond.

While they spend about 44 per cent to 48 per cent of their money on housing, with comparatively lesser during the age group of 75-84, food expenses average at 12 per cent to 14 per cent.

Healthcare costs grow higher as you grow older, costing 8 per cent to 13 per cent of your retirement savings, and clothing costs averaging at 3 per cent to 4 per cent. Transportation and entertainment expenses reduce as age increases, with the former costing 7 per cent to 14 per cent of your retirement income, while the latter, being entertainment costs, ranging within 6 per cent to 11 per cent.

Remember, although some costs — such as health care — may increase in retirement, there may be savings elsewhere. Researchers have found that once people retire they spend more time shopping carefully and preparing meals at home, for example. Their cost of living for items such as these goes down, matter experts add.

Keep in mind all of the income sources that can help cover your expenses
As you explore how much money you might really need in retirement, remember that the amount you decide to save and invest on your own is only one component of your future retirement income.

Sources of income for those who are aged 65 or older

Their income comes from multiple sources, including workplace savings, gratuity, pension and money from part-time work.

Another statistic represents sources of income for households aged 65 or older. It shows that 34 per cent of income comes from current employment earnings, 20 per cent comes from personal retirement accounts, pension plan pay-outs and annuities, 9 per cent comes from investments and 4 per cent comes from other sources.

Knowing the above statistics that is involved in calculating how much your expenses are estimated at and the possible sources of income can help you roughly estimate how much you should start saving now, to achieve a lump-sum post-retirement.


Working in retirement: expectations vs. reality

If you’re planning to work in retirement so you can save less today, planners advise that people be realistic about expectations. An annual global Retirement Confidence survey has consistently found that workers are far more likely to expect to work in retirement than actually end up doing so.

In their last published report, about 80 per cent of respondents planned to work in retirement, compared with just 30 per cent of retirees who report they have worked for pay in retirement.

Two ways to check on your progress right now

Understanding your post-retirement expenses and income can help you estimate how much you may need to draw from your personal savings each year in retirement. However, it can be tough to turn that goal into a realistic amount to invest today when your goal is decades away.

Here are two ways you can check on your progress to see if any changes should be made.

For a quick check of how you’re doing today vs. similar savers
Just as it can be helpful to see how your heart rate, blood pressure or weight compare to the “norm” when you get your annual physical health check-up, you can now assess how your retirement savings stack up against your peers by using ‘Net Wealth to Income Ratio’ calculators provided by several banks, both regionally and worldwide.

How much the best retirement savers and investors set aside
Using the Net Wealth to Income Ratio calculation from renowned US-based investment and wealth manager Merrill, strategists have found how much the best savers and investors have set aside as a proportion of their current salary.

Based on a the Merrill calculation, the best retirement savers — those whose savings are greater than 90 per cent of people in their age and salary range — have saved a total of, as shown below.

For those ages 18-29, the amount is 0.7 times their current salary and for those ages 30-39, the amount is 1.3 times their current salary. For those ages 40-49 the amount is 2.8 times their current salary and for those ages 50-59 the amount is 4.9 times their current salary. For those ages 60-64 the amount is 7.4 times their current salary.

For example, if 39-year-old Jane, who earns Dh120,000 a year, wants to see how her savings measure up to the best savers in her age group, she would just multiply her current salary by 1.3 and compare that to her current savings. Thus, to keep up with the savers and investors in her peer salary group, she would need to have saved Dh156,000 (Dh70,000 x 1.3) so far.

To see where you are and what you can change to stay on track for the future, other similar retirement calculators lets you view a projection of your savings to see if there is a gap between what you’ll have and what you’ll need when you finally retire and helps you adjust your strategy accordingly.

With the calculator, you can see how potential adjustments to your savings goal, retirement date and investment choices can affect the size of your retirement savings in the future.

However, even if these checkpoints show that you’re behind where you might be, don’t get discouraged by the big numbers you may see, advises experts. Whatever you save and invest today for the long term can make a big difference in the future. If you need to save more, even a 1 per cent increase can mean a lot over time, they add.


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