- Management Trainee
Everyone’s ideal retirement is different
There is a rule of thumb that says you should budget a certain percentage of your income towards retirement. Many experts say you should set aside 10 to 15 percent of your income for your golden years.
But there is a competing theory that says that you should budget for retirement based on the lifestyle you plan to enjoy, not the income that you currently earn.
This is because everyone’s ideal retirement is different.
Some people are satisfied living simple, quiet lives. Some want to enjoy world travel, expensive hobbies, sample fine wines, upgrade their homes and try new activities.
Some people are forced to work because they can’t afford to pay their bills, but others choose to work for pleasure and satisfaction, even though they don’t need the income.
Traditional retirement advice prescribes a formula: save 10 percent, or 12 percent, or 15 percent of your current income for retirement.
But that rule-of-thumb advice doesn’t take into account the type of retirement that you hope to have. If you are contented with living a simple life, you are satisfied cooking your own meals, cleaning their own home, and playing with your grandkids, you don’t necessarily need to budget 15 percent of your after-tax income towards retirement, unless you start saving late in life, you want to leave behind an estate for your children, or you want a solid buffer in case of emergencies.
On the other hand, if you want the excitement of sailing to all parts of the world, playing golf, taking art lessons and traveling to your choice destinations, you will probably need to budget more than 15 percent towards retirement.
Therefore, figure out how much you want to spend, per year, in retirement. Multiply that by 25. That’s how much you should have saved in your retirement account.
Create a spending record, save and invest more money
Start by writing down all of your purchases and expenses for an entire month, everything from your mortgage payment to your daily expenses and make a note of less frequent expenses such as insurance payments, professional dues and magazine subscriptions that occur annually, semi-annually, quarterly, or every other month. Before you can make changes that will improve your finances and increase your retirement savings, you need to know how you are spending every naira you earn.
Once you know where your money is going, start actively looking for ways to save more of your income. After you have at least three months’ worth of living expenses in savings, set up a relatively low-risk investment plan that will put your money to work and fits well with your retirement goals and the amount of time you have to achieve them.
Simplify your life
One way to expand your retirement fund while shrinking your stress level is to simplify your life. Start by getting rid of all the stuff you have that no longer fits your life and don’t replace it with newer versions of the same useless stuff. For example, if you have closets stuffed full of clothes and shoes you rarely or never wear anymore, donate them. Instead, design a wardrobe that requires just a few pieces in one or two basic colours, which you can combine to make many different outfits.
Simplification only feels like sacrifice if you let it. Once you get into the spirit, chances are you will enjoy the challenge of seeing how simple you can make your life without feeling as though you are giving up anything important. By simplifying your life, you can reduce your expenses and your stress, which will make it well worth the effort.
When you are looking for ways to lower your costs and save money, take a second look at your recurring expenses and the things you consider necessities. Do you need both a mobile phone and a land line? Could you save money on food by eating at home more often, or cooking more meals from scratch rather than falling back on processed foods? Could you make do with fewer toiletries, less makeup, or less expensive shampoo and still feel well-groomed? How about spending less money at the bookstore and more time at the library? Even small savings add up quickly and can pay big dividends over time.
Let’s face it, we all like to pamper ourselves now and then with something really special, whether it is a trip to the spa, a pair of diamond earrings, or a European vacation. But luxury, like beauty, is in the eye of the beholder. You can redefine luxury, and indulge yourself more often, by learning to savour less expensive experiences and possessions that, with practice a little extra mindfulness, will reward you with the same fabulous feeling at a fraction of the cost.
Drive less, walk more
If you live in a place with good public transportation, you may want to consider giving up cars altogether and relying instead on buses, and light-rail systems. According to a study by the American Public Transportation Association, families that use public transportation can reduce their household expenses by more than the average U.S. household spends on food every year.
Giving up a car and switching to public transportation also means you will be walking more, which will help you maintain your health. And for those few times when you really must have a vehicle, the generosity of friends and family members may do the trick.
Seek professional help
Get a good financial advisor. If you could create an effective retirement plan without help, chances are you’d already have a nice nest egg and be looking forward to a comfortable retirement. If that doesn’t describe your current situation, then it’s time to seek advice from someone who can help you determine how much you need, set appropriate goals, and figure out how to get there even if you are starting late.
If you are worried that you may not be able to retire as soon as you would like, and that you may outlive your savings, or may not be able to retire at all, note that you are not alone. While a comfortable retirement doesn’t have to remain out of reach, you only have to plan for it.