First retirement goal
April 2, 2007Thanks for visiting! If you like what you're reading, you may want to subscribe to my RSS feed.
A few days ago, I read a blog entry @ The Simple Dollar reviewing an article on retirement benchmarks that appeared in the April issue of Money Magazine. According to this article, at the age of 35 you need at least 1.6 times your annual salary tucked away in savings in order to retire at the age of 60 and have the financial resources to pay yourself 80% of your last annual salary for the coming 35 years.
Obviously compound interest will work in your favour the sooner you start. That is why I decided to have a closer look into the pension contributions my (soon-to-be) employer is making on my behalf to establish whether or not I would need to worry about reaching this target. With a little bit of help from Excel I established that I don’t - assuming the pension fund has an average return of at least 6.6% over the next 14 years.
This interest rate / growth rate seems definitely feasible and not only compound interest is working in my favour, but also the fact that my employer will increase the pension contributions over time with my years of service and age. For instance, while they contribute 5% of my annual salary when I start, I will be up to 11% when I’m 32 - assuming I have been employed for the 10 years in between.
Feel free to use my template to establish whether you’ll beat the benchmark or not (all numbers in the template are in relative terms rather than absolute monetary values).
Random statistics: RPI inflation rose to 4.6% in February (from 4.2% in January) which effectively means that I’m not even beating inflation with my current savings account. As soon as I start getting a regular salary, I will have to find a savings account that will actually earn something over time.
