If you are not working to be a millionaire, you should at least work to have a comfortable retirement years. With the advancement of medical technologies, human beings are expected to live longer. When you live longer, it also means that you will need more money for your retirement.

Retirement funding is a no joke process. One must be fully aware of their retirement fund. It is too late to plan for your retirement if you have reached 50 and above. Hence, retirement planning should start as soon as one starts too have an income.

As a financial planner, I met with a lot of people that do not think that retirement is important. Most of them think that they should settle their current financial problem first, and then they will look at their retirement needs. The more you procrastinate on your retirement goals, the more difficult for you to reach your retirement goals.

Let me give you two examples;

Eugene is 42 years old who earns $40,000 annually. His current investments are worth $50,000. He plans to retire in 20 years time and expected to live until the age of 85. He also indicated that he will need 60% of his last drawn income for retirement.

Assumptions:

• Investment rate of return before retirement: 8% pa

• Investment rate of return after retirement : 5% pa

• Inflation rate : 2%

• Wage growth rate: 3%

Therefore;

• First year retirement income : $43, 346

• Resources needed to fund retirement income : $738, 318

• Projected value of current resources at retirement : $238,048

• Retirement fund shortfall : $505,207

• Annual funding required at the end of each year: $11,041

As you can see, Eugene needs additional $505,207 for his retirement and he is required to have $11, 041 yearly to accommodate his retirement shortfall.

Let’s look at another example

Mike is 32 years old who earns $40,000 annually. His current investments are worth $50,000. He plans to retire in 32 years time and expected to live until the age of 85. He also indicated that he will need 60% of his last drawn income for retirement.

Therefore;

• First year retirement income : $58,254

• Resources needed to fund retirement income : $992, 246

• Projected value of current resources at retirement : $503,132

• Retirement fund shortfall : $487, 039

• Annual funding required at the end of each year: $8,740

As you can see, Mike needs to have $8,870 yearly to make his retirement fund adequate. From both examples, you can see that the age that you plan for your retirement is very important. The later you plan for your retirement, the more money you will need yearly to fund your retirement.

Note: Calculations were made on a financial calculator.