Better Save than Sorry – part 2

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The following article supplements an article on estimating retirement income published in the April edition.Click here to view part 1 of this article.

Estimating your savings at retirement

better save and retire

What sort of income will you need in retirement to maintain your current standard of living? And how much do you need to save to produce that income?

Most financial experts tell us you’ll need to replace 50% of your employment income at retirement if you expect to maintain your living standard – and more if you have a relatively low income or still rent your home.

The conventional wisdom is that, for most of us, spending habits (and needs) change dramatically by retirement. With any luck and good planning, a number of our everyday expenses will disappear. No more mortgage, childcare expenses, everyday work expenses, or need to set aside retirement savings. At the same time, our remaining expenses – things like food, transportation, entertainment, home maintenance or rent, utilities, insurance, and others – tend to stay pretty constant.

Employment income of Caymanians
A Labour Force Survey Report completed in the fall of 2012 by the Cayman Islands Economics and Statistics Office profiles labour force earnings as follows:

  • 1?3 of employed persons in the Cayman Islands earn $20,000 per year or less;
  • 1?3 earn between $20,000 and $40,000 per year;
  • 1?4 earn between $40,000 and $86,000 per year; and
  • About 6% earn more than $86,000 per year.

Online calculator

So what does it take to replace 50% of your pre-retirement income? Here’s what the online retirement calculator tells us based on typical Cayman income levels:

additional voluntary contributions tabular calculation

* Basic assumptions:

  • The member retires from the plan at age 65 with 35 years of service
  • 10% annual contribution rate (5% member plus 5% employer)
  • Average annual rate of return on savings: 6%
  • Expected annual increase in employment earnings and savings contributions: 3%

Obviously, your income replacement needs and results will depend on your personal circumstances and future events. Unless you are age 30 and your income specifically matches one of the examples above, we encourage you to use the online retirement calculator to prepare a personal estimate.

If you discover a shortfall, you can take full advantage of AVCs to boost your savings. As shown in the table above, even a small annual contribution can make a big difference over time. Simply contact Silver Thatch Pensions to find out how to add AVCs to your retirement savings.

 

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