by :

**Emlyn Scott**

Standard retirement plans are quite simple and apply to the middle class and to a lesser extent the financially independent. The following process would apply almost entirely to the middle class pension savings only (the financially independent would have extra personal holdings of assets such as bonds, stocks, mutual funds and rental properties):

1. Work out when you want to retire, say age 65, which is 35 years from now (if you're 30 years old).

2. Work out how long you're likely to live after retirement, say 20 years, until age 85. As a guide the approximate life expectancy today for a male is about 75 years and 80 years for a female.

3. Add some room for error, say an extra 10 years. Thus, the total amount of years that money is needed for your retirement is 30 years (20 +10).

4. Work out how much you need to retire in today's money and adjust for inflation. For example, if you think you need $35,000 per year in today's money to retire and you intend to retire 35 years from now, assuming 3% inflation, you'd need an income of $98,485 per year in future money (i.e., $35,000*(1+0.03)^35).

5. Work out what lump sum would produce $98,485 per annum for 30years and add to this a lump sum what you'd like to leave your heirs.
Let's say you'd like to give your heirs at least $150,000 in today's money, which is the equivalent of $1,02,512 in 65 years' time (35 years until retirement plus 30 years of retirement). (Normally, you'd also increase your retirement income by the inflation rate, say 3% per year, to maintain the real value of your income, but for this example we'll ignore this complication.) You also need to adjust for the interest you'd earn on your retirement lump sum after retirement, say a conservative 5%. In this example, the lump sum you'd need at age 65 works out to be $1,764,512. This will give you an income of $98,485 for 30 years and at least $150,000 in today's money ($1,024,512 in future money) to leave your children when you die.

6. Calculate the amount you'd need to save each month to generate $1,764,512 with 35 years of saving. Assuming, say, a 7% return on your savings per year, you would need to save about $974.03 per month ($225 per week) for 420 months (i.e. 12*35 years).

So, to earn a mediocre $35,000 in today's money in retirement 35 years from now and leave at least $150,000 in today's money to your heirs, you'd need to save at least $974.03 per month for 35 years. This is no easy task, and the result wouldn't guarantee you a wealthy retirement. Hopefully, you're starting to see why just saving for retirement is difficult and won't ensure that you have a particularly comfortable retirement.

However, it is crucially important that you create a middle class retirement plan because it will give the warning you need that without planning your retirement is bound to be very poor. If you speak to a financial advisor they should be able to walk you through the whole process.