How much do I need for a comfortable retirement?

Retirement is a word I’ve always associated with old people –some time in the distant future. However, as enter my late 40s, it’s something I find myself thinking about more and more as the time is coming closer for me.

What a “comfortable” retirement is depends very much on the individual but, without much of a government pension it’s obvious that we need to look after ourselves when we get old.

So I’ve found myself doing calculations recently, working out how much my wife and I might need to live on in retirement and checking that our savings are on track to achieve this standard of living.

It’s a four-step process I thought it might be helpful to share.

Step one: estimating my cost of living

The first thing I did was to calculate our current monthly outgoings – simply done by looking at our bank account and credit card bills. I then deducted things that I thought we wouldn’t need to spend money on in retirement.

For example, our mortgage should be paid off by the time we retire. So the mortgage payments could come off, as could the life insurance we have in place to pay off said mortgage should myself or my husband die earlier than expected.

I also deducted the regular savings we make and thought about taking childcare costs off too – but I decided to keep them as a proxy for any future requests coming into the bank of mum and dad….

I then thought about how many holidays we might like each year and any ‘big’ purchases we might have – from boring things like house maintenance to more exciting things like getting a ‘non’ family car again…

Step two: estimate my current savings

Once I’d calculated how much we needed, I looked at what we had managed to save already. Luckily most of our investments are all with the same financial adviser, so this was a relatively quick job.

I added up our personal pension pots, investment accounts and cash savings.

Step three: estimate the income from my current savings

Once I knew how much money we had managed to save, I could work out how much income that would produce if we retired today.

To do this I assumed that a pension pot of P1,000,000 could give an income of between P40,000 to P50,000 a year (that’s a yield of 4%-5%). I then multiplied this amount by the value of our savings.

Step four: get investing!

Using the assumptions above, say you wanted to achieve a “comfortable” retirement of P400,000 per year you’d need a pot of money worth about P10 million. And I don’t mind sharing that we are not there yet!

But don’t be disheartened if, like me, you have a long way to go. There are a number of things you can do to help you reach your goal – or at least get within touching distance.

You can, of course, keep working past your retirement date – maybe taking on a part time role.

Of course, if like me you still have time on your side, you must keep investing. To make sure you stay on track, work with a financial planner to figure out how much you would need to invest each month to make up your retirement ‘short fall’.