How much do I need to save for a comfortable retirement?

However, those looking to build a fund to boost their retirement pension are often unsure about how much they’ll need, how much of their income time, or when the right time to start is. In many cases, they simply decide to save whatever they can afford, regardless of if it will be enough to cover their needs. 

When planning your retirement savings, there are several factors to consider. First of all, pension systems vary widely from country to country. Some have public pension systems based on contributions by employees throughout their careers, while others rely on private pension models where companies, and sometimes employees, make regular contributions. And then there are countries that combine both systems.

In any case, the first thing we need to determine is how much we can expect to receive from the national system upon retirement. For example, if the system provides 60% of the income we earned during our working years, we’ll need to save to cover the remaining 40%.

However, rather than focusing solely on maintaining our income level, we should aim to sustain our lifestyle, which may be “less expensive” in retirement than it was during our working years. Let's not forget that many people approaching retirement age have already paid off significant expenses, such as mortgage payments and children's education costs. That's why it's important to calculate the expenses you'll have in retirement, including basic needs, recreational activities, and a cushion for unforeseen events.

Another important factor in determining how much we need to save is the age we start doing so. Obviously, the younger you start saving, the less effort you’ll need to put in each month or year to reach your objective. It's not the same to save a significant amount over a 30-year horizon as it is over a 10 or 15-year horizon. So what matters most, even more than the total amount we save for retirement, is to start as early as possible—ideally, from the moment we enter the workforce.

But most people find it difficult to begin this process until they’ve been working for a number of years, as they often have other priorities, such as housing or starting a family, which consume a significant portion of their income.

How we choose to invest our savings also matters. Regardless of the product you choose, you can take a conservative investment approach with safer, lower returns, or choose more aggressive options that offer higher potential returns but come with greater risk.

It's also important to consider macroeconomic factors, especially inflation trends, as both the devaluation effect of inflation on our final capital and its impact on cumulative returns are something we should keep an eye on. Ultimately, the main objective when investing savings for retirement is to outpace inflation.

We also need to consider an unknown factor: how long we will live. In other words, how many years we'll need to rely on our pension, and therefore how much we'll need to supplement it with our savings. In this case, we should see what the life expectancy is in our country and add a few extra years to account for the possibility of living longer.

In general, experts usually recommend allocating between 7% and 10% of our income to retirement savings. Most importantly, you need to have a savings strategy and set incremental goals to achieve your desired outcome.

One of the most popular strategies is the Greene formula, developed by Kimmie Greene, which suggests saving the equivalent of one year's salary every five years. However, it's a flexible method and depends on when you start saving.

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