Ask Melanie

Are you saving too much, or not enough, for your retirement?

Melanie Nutbeam, a certified financial planner based in Hong Kong, addresses common personal finance queries. Send your questions to

PUBLISHED : Monday, 24 September, 2012, 12:11am
UPDATED : Monday, 24 September, 2012, 1:25am

How do I know if I’m saving enough for retirement?

Whether you are saving enough will be relative to the lifestyle you want to live now and the lifestyle you want to live in retirement. Most of us want to achieve some consistency between the two. Sacrificing too much today makes as little sense as living high on the hog now only to fall into the mud at retirement.

Achieving the right balance requires a strong understanding of your values and goals. In Asia, where the “sandwich generation” is educating children and supporting parents, there is just as much chance that people are sacrificing too much to save as saving too little. Both can undermine happiness.

Most people find they need  60 per cent to 75 per cent of their final working income to sustain a consistent lifestyle in retirement. That assumes they have no debt. It’s easy to think when young that later you will get by on less, but that’s seldom the case. Retirees often want to travel more, and their medical needs increase.

To amass enough money to generate a replacement pay cheque equal to 60 per cent to 75 per cent of final working income starts with saving around 25 per cent to 30 per cent, on average, during our working years. Savings include repayments of mortgage principal (as opposed to mortgage interest) and compulsory savings to retirement plans.

The sooner you start saving, the sooner the power of compounding returns will work their magic, while leaving your run until later may mean facing up to some trade-offs.

You might decide to live on less in retirement or take on more investment risk. To give yourself the widest range of options, start saving, even a little, as soon as you can. Remember, a dollar spent is gone forever while a dollar saved can work for you in the future.

It all begins with a budget and a little planning. A client recently texted saying: “Well, maybe I went a little nuts, but I was able to find more financial info than I realised and I’ve attached a very detailed monthly cash outflows list. I look forward to seeing you Monday.”

This busy professional with children to support and planes to catch embraced financial planning as a way to reduce stress, not add to it.

There are several common-sense ways to save. Make sure all inflows and outflows are itemised. Review cheque stubs and bank statements.

Review each item and annualise it. Is it worth its annual cost relative to your goals?

Arrange monthly automatic payments to investment funds so you won’t miss what you don’t see. Mortgage repayments are a great example of forced savings.

Credit card debt is hugely expensive, so pay this debt first.

Make sure your budget includes health care and insurance. Our ability to earn is usually our greatest resource, so be sure it’s protected.

Financial security does not come from earning more, but from saving more of what you earn.
The views expressed here are of a general nature.  For clearer advice, talk to a professional planner