Author: Berfin Gedlaç
Date of Publication: 06/12/2022
When you are young, you might not think about the future in the long term. However, it is always wise to care about the next phase in life. Nowadays, we are living in a world of consumption without a second thought. We spend so much time and money on things that we don't necessarily need. What’s more, lots of things are going on around us and we just want to catch up with it. Therefore, in this chaotic world, it is also hard to maintain your income. When you are so busy with the stuff around you, you simply don’t think about the future. Unfortunately, when retirement time comes, you just have to confine yourself to what the government gives to you. However, a better option would be to save up on your own. But, how can a person save up when even maintaining money is so hard?
First of all, you need to have solid reasons to save up for retirement. The life expectancy of an elderly person is longer than a young person. That means you will want your money to last longer than it is now. Typically, if a retiree wants to have the same living standards, then they need approximately 80% of their pre-retirement income. With inflation affecting the whole world, maintaining 80% is getting harder. According to the latest data, the average inflation rate has increased from 9.9% to 10.7% for the Euro. Therefore, we don't know how much everything will cost in the future.
Keep The Same Quality Of Life
In order to have an approximate opinion, it is advised to write down revenues and expenses and try to match them. That way you can understand your recent life costs and know your financial capabilities. In addition, when planning your retirement, expectations can evolve, so the lists should be updated as needed. At this point, there is no fixed rule but surely there are some reasonable opinions about how to save money and how much to save. Some people support the 4% rule for saving up for retirement. The 4% rule basically suggests that a retiree shouldn’t spend more than 4% of their retirement savings each year. Otherwise, they wouldn’t ensure a congenial retirement. To keep the balance of 4% without having problems at a younger age you need to do a simple thing. In particular, you should multiply your expenses by 25 to determine the total amount that you will need. This rule suggests that you not withdraw more than 4% of your retirement savings per year in order to fund your retirement for at least 30 years.
How To Start
Of course, there are other options as well. One of them, which is suggested strongly, is to invest in assets that gain value. However, investments have their risks. This is why doing research and improving market knowledge would help. Younger investors can take more risks than investors, who are closer to retirement. The possibility to gain what you lost is relatively higher with time.
For example, let's say that a person contributes €5,000 per year with an interest of 1% annually. After 35 years, the savings would be €208,000, which is good enough. However, if the same amount of money was put into an investment with approximately a 7% average annual return, the same account would have €700,000.
In conclusion, the best way to have a better retirement life starts today. No time is too late to think about the future. We recommend you start planning for retirement at a young age in order to be carefree in the future.