Saving for retirement | You want this amount in your account for your pension

Life is expensive, very expensive. As a result, many young people wonder whether they will be able to pay for everything. In addition to fixed costs and taxes, we also hope that we will have enough money left over in our old age. According to the book “Your Money Bible,” you want to have this amount in your savings account to grow without worry.

Chief CM Luc Van Gorp caused a stir earlier this week when he stated that elderly people should be able to end their lives if they feel it is complete. He also spoke of the impending inability to afford the costs of an aging population. This raised the question among many: How big should my savings be when I retire? How much do I need to save so I can enjoy an old age free of financial worries?

There is no golden rule here. The answer depends on many factors, such as: Do you own your own home or are you still renting it? How much is your pension? How affordable is your lifestyle? Of course, the question that no one knows the exact answer to is: How long will you live? Because obviously it makes a big difference whether you die the day after you retire or whether you join the growing group of centenarians.

A rule of thumb is that it’s best to save eight annual salaries, roughly to 100 net monthly wages, for your retirement if you want to maintain your standard of living afterward. Again, this is a general rule, let’s see how you can make your own calculations for your specific situation.

I started early

There are tables in circulation that indicate how much you should do It’s best to save at a certain age, because in order to build a savings pot large enough for your retirement, it’s important to start early.

• You are between 20 and 30 years old: You try to limit all your consumer expenses, that is, all the money you need to pay for your lifestyle, to 75 percent of your income. In other words, you try to save or invest 25% of your income.
• You are 30 years old: You must have saved at least one year’s salary, which includes a savings account, retirement savings, and investments.
• You are 35 years old: twice your annual salary.
• You are 40 years old: three times your annual salary.
• You are 45 years old: four times your annual salary.
• You are 50 years old: five times your annual salary.
• You are 55 years old: six times your annual salary.
• You are 60 years old: seven times your annual salary.
• Age 65: Eight times your annual salary.

Human resources firm Mercer once calculated that you needed to set aside 85 times your net monthly salary to be able to maintain roughly the same standard of living after retirement. This is very close to eight annual salaries, because that equates to 96 monthly wages. For a net salary of 3,000 euros, that’s almost 300,000 euros.

What could this piggy bank be made of? From all your savings and investments (savings book, stocks, funds, etc.), money from the Supplemental Retirement Plan or the so-called Second Retirement Pillar, money from your Retirement Savings or the Third Retirement Pillar. Your own home is not included in this savings pot, although of course it is a significant amount.

Income trap

This is a rule of thumb that could be improved if we had insight into the income and expenses of a person over 65 years of age. We did this exercise in collaboration with Michael van Drogenbroek in Your Money Bible, a book about wise investing in the first, second, and third half of your life.

According to figures from Statbel, the Belgian statistics agency, a household where the reference person is between 65 and 74 years old spends an average of around €36,000 per year, and if the reference person is over 75 years old, this amounts to €34,000. Let’s say 35,000 or about 2,900 euros per month.

Let’s say you retire at 65 and live until 85 (in Flanders, a 65-year-old man lives on average almost 84 years, and a woman lives over 86 years). So you need €2,900 per month for 20 years or 240 months. But the aging of the population is increasing: the number of people over 80 years old is increasing sharply, and more and more people are living to the age of one hundred. Let’s say you live to be 100 years old, you will need €2,900 per month for 35 years or 420 months.

Naturally, your statutory pension forms an important part of the €2,900 per month. The amount of the pension can vary greatly, especially depending on your situation: civil servants receive a much higher pension than employees and the self-employed. Here too, the rule of thumb: your pension is a little less than half of your last salary. Yes, retirement means a serious drop in income.

You can easily find out how much pension you can actually count on mypension.beBut the average employee pension is now 1,933 euros. In any case, it is quite clear: a statutory pension is usually not enough to maintain your standard of living after retirement.

In the meantime, I would also like to point out that the statutory pension is also insufficient to pay for a room in a residential care centre, which now costs on average more than 2,100 euros per month in Flanders. This is without any supplements such as hairdresser, or additional expenses for new clothes, for example. We at Knack have previously calculated that for more than 80 percent of pensioners, the statutory pension is insufficient to pay for accommodation in a residential care centre.

Return to our numerical example. Roughly speaking, this means that when you turn 85, you should have a savings amount of around €240,000 to cover your expenses for all those years. If you live to be 100 years old, this means approximately 420 thousand euros. The €300,000 piggy bank you need according to the general rule is somewhere in between.

Average life expectancy

These are still separate calculations, based on averages. You can make your own calculations for your particular situation. How do you move forward?

To repeat: You can of course count all your savings and investments in this piggy bank. You can get these numbers from the bank. The amount of your retirement savings, which you find in the relevant financial institution, is also counted in your piggy bank. Just like the amount of any additional pension, which you can find on mypension.be, is the same as your statutory pension amount. Who knows, you may still have an inheritance in the future – but don’t consider yourself rich.

The value of the home is usually not included. Consider that extra nest egg. Maybe you will have to deal with unexpected costs, for example expensive hospital bills? Or suddenly a car gives up the ghost and needs to be replaced? Leaky gutter that needs repair? And maybe you also want to leave something to your children (grandchildren)? Because sooner or later they will also wonder and start calculating: Will my old age be financially available?

Text: Ewald Peronet

Read also: