Retirement Planning - Start Early & Save Regularly
By Rohit Gupta, Director & Country Risk Manager, Consumer Banking, Citibank Turkey February 08, 2013 12:00 PM
Increased life expectancy and the move away from a traditional company "defined benefits plan" make retirement planning amongst the most important and long lasting decisions for individuals and families.
As a rule of thumb, financial planners recommend withdrawing no more than 4% - 5% of retirement savings every year. That means a lot of savings for an average family (to get a income of $3,500 in retirement would mean savings of just over 1 million).
How does one save enough over 30 years of working life for 30 years in retirement? The answer is simple - the magic of Compound Interest. Importantly, savings is different from investing (and speculation from Investing). A few percentage points in interest rates can mean a huge difference in your future wealth. Along with safety, one needs to ensure a good return on investments - even after retirement.
If you saved $ 100 per month for 40 years: At 3% interest you would have approx. $ 92,000 (2x savings), at 5% - $ 152,000 (3x savings), and @ 9% - over 465,000 (10x your savings)
Simulations show that -- starting early, saving regularly and getting a steady rate of return -- will mean your required retirement nest will consist approximately 30% of your savings and 70% from cumulative interest.
Basic guidelines include:
- Pay yourself 1st: Set up a regular monthly plan. This ensures discipline as well as allows benefits of dollar cost averaging.
- Asset allocation: Over a longer period asset allocation has shown to be the most important factor in determining returns from investing (with stock selection and market timing, having only secondary roles).
- Keep it Simple: Index funds have the advantages of - (i.) diversification, and (ii.) lower costs.
- Have adequare Life Insurance - based on your (and childrens) age.
- Have an updated Will
- Ensure your critical financial documents are updated and uncluttered/easy to access.
- Money is only a means to an end. Stay Happy & Healthy.