How Much Do You Need For Retirement?

A lot of us never bother too much about how much we need for retirement. Maybe because we are too busy living our lives at present that we don’t have time to think about the future.

Yet, the day will come when we need to retire. When that time comes, do you have enough money to live comfortably for the rest of your life?

Here’s how you can calculate how much you really need for retirement.

First, you need to decide how much money you will need every month during your retirement age. To have a rough idea, you can use your current monthly expenses as a basis. If you spend RM3,000 every month at present, you probably need about RM2,000 per month after you retire. The amount is less because you would have already paid off your house loans and life insurance. Furthermore, you may eat less and go out less during your golden age so expenses are naturally lower.

However, don’t forget that you have to take inflation into consideration. Let’s say, by the time you retire, the value of money has dropped to 50% of present day’s value. Then, what you really need is no longer RM2,000 but RM4,000!

Next, you will need to decide how many years you will live after retirement. Let’s say you retire at age 65, and you think you can live up to 85, then you need an amount of money that can last you 20 years!

So based on the calculation above, you will need RM960,000!

RM4,000 x 12 months x 20 years = RM960,000

If you are 40 years old now, and you retire at age 65, then you only have 25 years to save RM960,000!

But if you are 20 years old now and you retire at age 65, you have 45 years to do so. That’s why the younger you are, the better it is to start saving for retirement!

Note that the inflation rate fluctuates every year, so this calculation is just an estimate. Also, you may decide to retire earlier and your life span may even be longer. All these variables will affect how much money you will need to save for your retirement.

Do you think you can save that much? In this case, don’t save your money in the Fixed Deposit Account. Instead, you should try placing your money in unit trust funds to gain from the higher returns.

But before you do anything, please make sure you already have an Emergency Fund ready that can last you up to 6 months. Read more about it in my Emergency Fund post.