Expat Money Blueprint:
How much do you need to save per month?
1. Do I have a retirement gap?
You now have your retirement target. Next we need to work out if your current financial arrangements are suffice to hit that target.
To do this you are going to input the current value of your assets and predict what they will be worth in the future. By assets I mean your current pension, property, savings and anything else you have.
If they add up to more than your retirement target then happy days. Continue to earn, save and drink pina colada’s in the sun.
This is where spreadsheets can be useful – or using a financial planner. Doesn’t need to be detailed at this stage – just a rough indication.
Just a quick plug – I have an online course called ‘Sort Your Finances In A Weekend’ which has a spreadsheet template in it.
If you want to make your own – here’s an alternative:
- Get the current value of your pensions, savings and house.
- Next go to my website: theinvestingcoach.com and click on resources: there you will find a compound calculator
- Put in each current value, then any regular payments, such as your pension, then an interest rate. For a start I suggest you put 5% in
- Put number of years to retirement
- Put those in a spreadsheet and add it up.
- Take that total away from your retirement target in the last video and that will give you your retirement gap.
2. How much do I need to save per month to close the gap?
Next you need to work out how much you need to put away per month to close that gap.
A quick and dirty way is:
- lets assume you have 20 years until you retire
- Divide your retirement gap by 260 and that will give you the amount you need to put away IF you are going to put it in the bank and get 0.8% interest per year
- Next divide your retirement gap by 460 and that will give how much you need to put away if you were to get 6% per annum
If you want to refine this further, then go back to my calculator and play around with different monthly amounts, returns and timelines to get a real sense of what you need to put away.
Now obviously if you can earn 6% a year, you don’t need to put as much away as 0.8% a year. The impact is even more dramatic the further away from retirement you are due to the power of compounding. But lets just drill into the scenario’s a bit more.
0.8% represents you putting your monthly savings into a standard savings account with a high street bank. Interest rates are universally low in the western world and so even earning 0.8% could be a challenge, but it’s a fair assumption for our purposes.
Earning 6% assumes that you get some exposure to the stock market over a long period, say 10-20 years. This would be through using tracker funds and will depend on which trackers you buy, but getting 6 is a reasonable return to expect.
My guess is that the amount you need to save under the 6% scenario looks much more reasonable than the 0.8% scenario.
So – commit now to taking some action on the back of this video and up-skilling yourself around how you can get 6-8% returns. You have to proactively do something, it won’t get handed to you on a plate, but the pay off is massive.
OK- in 3 calculations you’ve come a long way! You’ve worked out how much you need in retirement, whether you have a gap, and how much you would need to put away to close that gap.
Find out more about my 1-on-1 finance coaching: