ING's Be Good at Money video tutorial on retirement tells why saving for retirement is important and why it's best to start putting money away for it as soon as practicable.
Won't the government pay for my retirement?
Relying on the government to provide for retirement is a risky strategy. Not only can a state pension be small compared with a working income but governments can also change the amount paid and the eligibility age. State debt, aging populations and longer life expectancy are seeing many countries raise their state pension age. The video tutorial suggests those wanting to save for retirement themselves should take three steps - plan, budget and save.
Step 1: Make a plan - don't rely on luck
The amount needed in retirement differs from person to person - particularly in relation to when they want to retire and the type of lifestyle they want to have in their golden years. Even for young people, having general ideas of where you want to live in retirement (or of whether you dream of travelling the world or of staying at home close to grandchildren) can help focus long term goals. Relying on inheriting a large sum of money or on making a profit from selling property is often not sensible. Planning to be lucky is a foolish plan.
Step 2: Prepare a retirement budget
This Be Good at Money video tutorial suggests preparing a retirement budget - working in likely state benefits, employer contributions and private savings and investments. As retirement approaches, it might be possible to get a reasonable guide of how much income can be expected. Online tools - such as the Your Number calculator from ING Direct USA - can help. Answering questions about lifestyle goals will help determine whether you need to save more, work longer or revise your expectations.
Step 3: Start saving early
An important factor in meeting retirement goals is starting saving as soon as practicable. Thanks to the power of compound interest, starting early can make it easier to reach savings goals. This video tutorial gives the example of two savers: the first of who saves €2,000 a year from age 25 and the second of who saves €4,000 a year from age 40. It says that by age 60 (with 3% interest), the first will have accumulated €125,000 and the second €110,000. The first ends up with more despite the fact they paid in less, due to compounding interest.
Don’t forget inflation
When preparing a retirement budget, remember the cost of living tends to increase each year. The eZonomics video How to protect your savings from inflation runs through the numbers. It tells how even if inflation is low, it adds up over time to increase prices significantly over time.