The problem that I have is rather fundamental. Most well written retirement planning books that I have read start out with a simple question; what is your retirement going to look like? You take what you want to be doing during retirement, and assign a dollar value to it. Then you figure out where you are in your savings and make a plan to get from where you are to where you want to be. Simple right?
The problem is I don’t know what my retirement will look like. I don’t know if I’ll have a spouse or kids, or where I’ll live. I’m not even certain at what age I want to retire. I can come up with where I am but even the working years don’t have a plan. I don’t know if I’ll work for the same company for my career, I don’t know if I’ll end up with a pension. I don’t even know at what rate my pay will increase.
That said I am a big believer in saving early on, so I’m saving for retirement anyways. I set aside about $350 a month for retirement savings. That is 10% of my take home pay, which is generally the recommendation from experts (such as the author of “The Wealthy Barber” and Gail Vaz-Oxlade). While I could save more, for the next 5 years I am concentrating on making my mortgage disappear.
In the meantime $350 a month is being added to the $22,000 that I am to receive instead of a pension for my military service. If I continue to save at my current rate and assume 7% return on investments; then at 55 I will have $708,000 in retirement savings, and $1,484,000 if I wait until I’m 65. (Actually probably a bit more because my 10% contribution will increase as my pay increases and I plan to reinvest any tax benefits.)
That said I fully expect my plan to be revised as my life changes. The first point of revision will be in 5 years time when my mortgage is paid off. At that point I can adjust my plan and step up savings if I want since losing my mortgage payments will free up $1,500 a month.
Have you got a retirement plan worked out?