Preparing for retirement made easier - May 27, 2018

Preparing for retirement made easier

Thinking about retirement can be scary knowing that most of the pension systems are crumbling around the world. However, with the proper techniques, saving can be a little bit easier. Even serious goals, like saving twice one’s yearly salary by the age of 35 can be reached.

Retirement experts love to say that saving twice our yearly salary by the age of 35 is a great start for planning the future. This may sound overoptimistic or even impossible for many, as people tend to have serious problems with saving money. But it might not be as hard as it sounds at first.

10% can be a lot

Many believe that saving money can’t be done with small steps. Others say that saving is for the already wealthy. But experts believe otherwise. In the US, an average yearly salary at the age of 25 is around $33 thousand. With saving and investing only 10% per month, one can save a whole year’s salary with ease.

Saving a full year's salary in 10 years

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The maths behind this is relatively simple: workers can count on a 3% yearly rise in their salary. This adds to their savings without realising. If we invest our savings in non-aggressive portfolios, it can reach 5% yearly return rather safely. This way, saving and investing only 10% can lead to 1 year’s salary in 10 years easily.

Reaching the impossible goal

If we are just a little bit more conscious with our savings, the double goal can be reached as well. The only thing we have to do is to raise our savings progressively. Our salary is growing, why shouldn’t our monthly savings do the same?

Savings two year's salary in 10 years

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In the example above, our rise is still 3% every year. This means that we can raise our savings by 2% easily. While we are going to save more every month, we will still have a little bit more money to spend thanks to our rising salary. This might be a bit harder, as it needs more self-control, but it’s far from impossible. This way by the age of 35 we will have two years’ salary saved up, starting only with saving 10% every month.

Why is it important

In our example, the numbers are in dollars, but the basic maths works in every currency. It better does, since thinking about the future everywhere: pension systems have serious problems around the globe. Self-care is going to be the most important thing for a safe retirement in the future. This can only be reached with thinking forward and saving for ourselves.

This might not seem easy at first, but as we can see, small savings can add up to a lot on the long term. It’s also important to start saving as soon as possible, that’s why experts believe that it should be done as soon as we start working.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.