A lot of people don’t plan well for their retirement. The general feeling is that since retirement is way ahead into the future, we don’t really have to worry about it for now. We also falsely assume that the super contributions our employer makes every month, should be enough to meet our needs in our retirement. Imagine for a second that you are 55 years old and plan to retire at 65.

So you have 10 years to reach your golden age. At 55, you start looking at how much your super has accumulated and how much lump sum you will get in ten years time - You do your calculations and then it hits you like a thunderbolt - what you have saved up in your super is not going to meet your retirement lifestyle.

You start panicking and start contributing more to your super for the next ten years - The chances of you not reaching your investment goal in the next ten years are very high - Ten years is not a very long investment time frame for your super investments - unless of course you win a lottery.

Start thinking about your super before you turn 55 - way before you turn 55. Its never too early to start planning for your retirement. The best part is you don’t really need to spend a lot of time planning for retirement - Its a lot easier than you think.

How Much Do You Need

The general consensus among financial planners is that you need between 60% and 70% of your pre-retirement income in your post-retirement life. Anything less than this can cause a huge deterioration in the lifestyle you are used to.

In most cases regular super contributions will not be enough to reach the 60 to 70% investment goal. Do remember though that 60 to 70% will only lead to a modest or reasonable comfortable lifestyle. The definition of ‘comfort’ differs from person to person and hence you should arrive at your own retirement income requirement. This depends on the type of lifestyle you plan to lead in your retirement. eg…do you plan to travel a lot etc. Write down what you expect your expenses and income will be in your retirement and arrive at your figure. The final figure you arrive at can be greater than 60 to 70% of your pre-retirement income but should not be less than 60 to 70% of your pre-retirement income.

Lets say your current salary is 70,000 dollars per annum and you arrive at a requirement of 60,000 per annum (in your retirement). Also assume you are planning to retire at 65, which is 30 years from now.

The Future Value Of Your Requirement

The 60,000 per annum figure you arrived at (at the end of the previous exercise), is the figure in today’s dollar value. The value of 60,000 dollars today will not be the same as its value in a few years time.You can buy more with 60,000 dollars today than in a few years down the line. This is due to inflation. We need to find out what the future value of 60,000. The future value of 60,000 per annum is $125,854 dollars (assuming you retire in 30 years time and the average inflation is 2.5%). SO we basically need 125,854 dollars per annum in 30 years time - This is equivalent to 60,000 dollars per annum today.

To Reach Your Target Per Annum Figure What Should You Contribute

Your employer will have to make a compulsory contribution of 9% of your gross salary towards your super. This will usually not be enough. You need to make regular contributions to reach the desired figure. The sooner you start making these contributions, the better it is.

Calculators That Can Help You

Use this Super Calculator to find out how much regular contributions you need to make to reach your desired financial goal.

There is another amazing calculator from ASIC (Australian Securities Investments Commission). It might be a bit complex to understand but I suggest you spend some time understanding how it works. It is a valuable resource. Here is why I love it:

• You can easily find out how different fee structures can affect your final super balance. This helps if you want to compare funds.
• It also gives you the option to calculate what your savings would be if you quit for some time prior to retirement (eg…if you take a year off to go traveling or a year off to have a baby etc).
• Easily illustrates how increasing or decreasing your contributions can affect your final amount.

Have you taken your first step towards retirement planning…Share some of your experiences.

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