There’s many scenerios when we talk about retirement planning. Different people have different desires. Different desired retirement age, lifestyles, goals, etc.
I will be using the following assumptions for my example.
- Annual inflation rate: 2.65%
- Annual salary increment: 4%
- Current age: 31
- Retirement age: 70
- Monthly salary: $2,000 (today’s dollar)
- Desired retirement monthly amount: $1,200 (today’s dollar)
- Annual bonus: 2 months
- Annual investment growth: 3.5%
- Portion of annual income allocated for retirement planning: 15%
My assumptions above are based on a modest salary of $2,000 and a desired monthly retirement fund of $1,200. This is quite a basic amount and feel free to adjust to, based on your personal preference.
Why $1,200? Enough? Let us see:
- Food: $450
- Transport: $50
- Phone and broadband bills: $100
- Insurance and medical: $300
- Entertainment and miscellaneous: $300
By then, we should not need to worry about our house payment or car loans.
My example will also assume that you are able to at least achieve a constant growth on your salary until you are age 69.
If you are to put aside 15% of your income annually for retirement, and use it to earn a conservative interest of 3.5% every year, you will earn a total of $687,690 from age 31 to 69.
Based on life expectancy for men of 83 years old, 14 years of retirement will require an amount of $666,399.
This shows that if you are willing to delay your retirement age, start to save and invest now, retirement is still a possibility. This also shows that if you are able to start earlier, you will have more time and resources to achieve your desired retirement goals.
If you have a higher risk appetite, you may even diversify your investments to achieve a higher return.