Realistic retirement savings?

People might not be earning enough to retire comfortably

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Three Times Your Salary in Savings by 40 Is Absurd | RealClearMarkets

Financial advisers may wheel out these statistics, but in today's precarious times what's needed is sensible saving and government help, asks Merryn Somerset Webb, editor-in-chief of MoneyWeek

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Is having savings of three times your salary by 40 a realistic retirement plan?

By Joe Harker

How much should a person have put by in savings if they want to retire comfortably? Obviously there needs to be plenty, but with people living longer and wanting to enjoy a more comfortable retirement that amount can go up even more. There are fears that the retirement age will continue to rise until people are working until they die or only have a few years out of work.

It would seem that a person should have saved three times their annual salary by the age of 40 if they want a comfortable retirement, with a view to retiring at 67 having saved 10 times their annual salary to spend in their golden years. It is therefore recommended that starting at age 25 a person should be saving around 15 per cent of their annual salary just for the purposes of retirement. However, with the cost of living going up and people finding their real term pay dropping this could be a large amount for a person to put aside.

There is also advice to invest in stocks throughout your lifetime as they can also help provide more money for later life. However, many places giving out this advice concede that the laws and financial situation could be completely different many years down the line. Retirement age laws and employer contributions could be drastically different, and the squeeze on real pay could make it impossible to put aside such figures every year. Many people do not have the luxury of putting 15 per cent of their take home pay into savings.

Indeed, The Guardian suggest that it is "absurd advice". They point to the amount of people that cannot afford to save so much, and suggest that such forward planning is overruled by "the needs of the present" being more important than "the needs of the future". For many people it may be hard to think about saving such large amounts of money when the financial burdens of the present are so restrictive. In addition, people may believe that it is more worthwhile to spend some savings on holidays and leisure time while young and active enough to enjoy it.

Another problem people face is the lack of "emergency savings", money put aside for the various disasters and hardships life can throw at an individual. Without this reserve of money to be spent in situations that really need it, it appears that people dip into their retirement savings and end up doing long term damage to their saving plans.

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