The three numbers critical to a happy and comfortable retirement

Retirement planning is one of those things that we tend not to think about until we have no choice. And it is easy to see why. When so many of us struggle in our current living circumstances, how can we begin thinking about the future? We don’t know when we will retire, so why should we thinking about something we don’t actually know much about?

Because it is inevitable. At some point in our lives, almost all of us will retire. And for many of us, we won’t be prepared enough. A family friend is now 92 – he has lived a full and adventurous life but he chose not to do anything to plan for his retirement. Why? Because in his age group, no one really did it and when he got around to finally getting a plan in place, he decided that the ‘powers that be’ would have him dead at 80.

There is a slight problem with his maths! So for the last 12 years, this lovely gentleman has struggled to get by. Luckily his only saving grace was his Veterans Disability Pension and he had help to find appropriate aged care facilities, but he has not enjoyed a quality of life.

This is why retirement planning is so important. To help you live a life that you love and that you enjoy, you need to make provisions for that lifestyle. You have to be willing to work towards it, even if parting with some cash every week from a young age isn’t quite what you want to do.

I came across an article in Time magazine that looked at the three golden numbers you need to know for retirement. They were derived somewhat from the book, The Number written by Lee Eisenberg a few years ago. After reading through it, I thought about it in application to my own life and you know what? It actually made quite a bit of sense!

The three golden numbers you need to think about for your retirement aren’t your bank balance, they aren’t your super fund account number and they aren’t the cost of retirement village entry. They are three simple equations that can give you a good idea about what you want to achieve and where you are heading.

The first number Time mentioned was the percent of your pre-retirement income you will need to maintain your current standard of living in retirement. This is basically how much money you will need to live on to enjoy life later, as you are right now. The second number is the amount of money you need to save to achieve this goal and the third is how much you can spend each year of retirement without depleting your savings before your time is up. In other words, not planning like my lovely friend did!

They seem like basic principals but the truth is that they aren’t always what we focus on when we plan for retirement and they should be.

This week, the Centre for Retirement Research at Boston College issued a report that investigated the first two numbers. They found that low income earners need to live on 80% of the current income during retirement and need to save 11% of their annual income from the age of 35 onwards.

A middle income earner will need to live on 71% of their current income to maintain the standard of living in retirement and will need to save 15% of their pay to achieve this. And an high income earner will need a replacement rate of 67% to enjoy the standard of living in retirement and to achieve this will need to save 16% annually from the age of 35.

So basically, whether the numbers change by a couple of points or not, this gives us a great guide to teach us just how much we should be putting away.

I think it’s a given that most of us are well past the age we are supposed to begin saving for retirement, but, I want you to think about these figures and tell me, have you got enough to retire on based on this?