Believe me or not, pension calculations are not easy. I will show you here two ways on how you can calculate and build your pension plan – the complicated (do-it-yourself) way and the simple way (let the experts do it for a decent small fee).
If you landed this blog, it means you are taking seriously your pension plan. Which is perfect, because 70-80% of people don’t. The current (OECD) life expectancy (global average) is currently 80,3 years.
Based on other studies, the life expectancy increased recently with 0,4-0,6 years/year. With the pace of medical progress and quality of life accelerating, it means that you can expect to leave around 85 years if you retire by 2025, or 90 if you retire by 2035 – and these are minimum values. I would assume that the wearables and other med-tech pushes from multiple angles (see the insurance industry) would take you further by 3-5 years at least.
With the current retirement age at 60 (women) to 65, you are set to get a pension for another 20-30 years after.
I also assume you know that the state pension funds are getting smaller each year and that the global population is aging, meaning two things:
– state or even funds pensions will get smaller (yields decreasing, contributor base decreasing etc etc);
– services (esp. medical and support) for elderly people will get more expensive.
Long story short – to live a good after-work retiree life, you need to start saving NOW.
So how can you do it?
1. Do-it-yourself pension funds calculations
I am assuming that you can deal with some maths (don’t worry, nothing for a masters in science). I am also supposing you can use a spreadsheet. Good news – you do not need to buy a Microsoft Excel or Office license – all these calculations / functions listed below are in Google Sheets.
Say that you want to retire after the next 20 years of work. The yields/interest rates for any investments and deposits are at 2% (a very important number). And after 20 years, you want to start withdrawing from your investment fund 50,000 (USD or any other currency) per year, for (hopefully) another 25 years.
The question is – how much do you need to deposit yearly into your pension fund to achieve this objective?
Below please find my Google Sheet calculations of the pension fund contributions:
2. The easy way – use the experts
There are nowadays many sites that can do this continuous (or yearly) financial weight lifting for you.
They have power of negotiation, financial experts and tested models behind. For a small fee, you can have an-ever learning and evolving solution not only doing the calculations each time needed, but also recommending adjustments to your portfolio. At the end of the day, you might be much better leaving this on the hands of the experts, rather than revising your pension plan periodically and doing imperfect adjustments. So give it a try!