Planning for retirement can feel overwhelming but breaking it down into manageable steps can make the process much easier. Here’s a guide to help you calculate how much money you’ll need to retire and how much you should start saving now, considering the impact of inflation on your savings.

 

1. Estimate your annual retirement expenses

Start by estimating your annual expenses in retirement. Your main costs will likely be housing including maintenance and utility bills and healthcare expenses. You also need to keep in mind daily living expenses such as groceries and transport as well as lifestyle expenses like travel and entertainment, gifts and hobbies. Life is full of unexpected surprises so there will be a need for some contingency as well. The common rule of thumb is to aim to have between 70 and 80 per cent of your pre-retirement income if you want to maintain your current lifestyle.

 

2. Calculate the total savings needed

Once you have an estimate of your annual expenses, you can calculate your total retirement savings using the 25x Rule. This rule suggests multiplying your annual retirement expenses by 25 to determine how much you need to save. For example, if you expect to need €50,000 per year, you would need €1.25 million (€50,000 x 25) in savings.

 

3. Factor in inflation

Inflation erodes the purchasing power of your money over time. To account for this, you need to adjust your savings goal. As a guide, assume an average inflation rate of 3 per cent per year and use this to project how much you will need in the future. For instance, if you plan to retire in 20 years, you would need approximately €90,000 to purchase the same things which today cost €50,000.

 

4. Determine your current savings rate

Next, figure out how much you need to save each month to reach your goal. Use a retirement calculator to input your current age, retirement age, current savings, and expected rate of return on investments.

 

5. Adjust for investment returns

For many, saving alone is unlikely to be enough to cover retirement expenses so it’s also important to invest. You can adjust the amount you need to save by assuming a conservative annual return of 6 per cent on investments before your retire. Also, keep in mind that investments could also continue to give you a return after you retire.

 

6. Regularly review and adjust your plan

Life circumstances and financial markets change, so it’s important to review your retirement plan regularly. Adjust your savings rate, investment strategy, and retirement goals as needed to stay on track.

 

Conclusion

Calculating how much money you need to retire involves estimating your future expenses, accounting for inflation, and determining a realistic savings plan. By following these steps and regularly reviewing your plan, you can work towards a financially secure retirement.

MeDirect offers a range of savings and investment products designed to help you build wealth with confidence and autonomy. You can learn more at https://www.medirect.com.mt/save/ and https://www.medirect.com.mt/invest/

 

MeDirect Bank (Malta) plc, company registration number C34125, is regulated by the Malta Financial Services Authority and is licensed to undertake the business of banking in terms of the Banking Act (Cap. 371) and investment services under the Investment Services Act (Cap. 370). The Bank is a participant in the Depositor Compensation Scheme established under the laws of Malta.

MeDirect Bank (Malta) plc, The Centre, Tigné Point, Sliema, TPO 0001, Malta.