There is such a thing as a retirement gap. The experts claim this is due to insufficient pension build up. Recently it came up as I was checking my personal finances. So there it is a potential financial gap in the future.
Question is, how big is this gap?
I can’t really figure this out. Because I don’t know what monthly income my current pension funds will buy me the moment I retire. How come ?
Well from what I understand , it has everything to do with the interest rates. And more importantly the interest rate the moment you (or I) in this case retire.
The moment I retire, the saved money in the retirement funds will become available to purchase a retirement income.
Which gives me a income based on the calculation “Amount of money in retirement funds * interest rate”. Which is good if the rate is 12 % and very bad if it’s 2%. I might oversimplify it at the moment , but this is what I understand so far.
OK here comes another part of the gap, problem is the interest rate which we calculate the amount of money to put in the pension funds with nowadays is 4%. Well we all know what we get in our savings account. Closer to 0,9%.
Which adds another gap to the gap. So I already save too little for an income of which I don’t know or I can’t calculate how high (or low) it will be.
So lot’s of confusion. This got me thinking, basically I have no way of determining how high my pension will be in the future or how much I will have to save in my pension fund for a nice cosy retirement.
Next question , what is a pension ? No expert here, but it seems to me we can define it as: Income without the need to work for it.
Sounds good to me, why wait for it until I retire ? Let’s start now.
Which I did, I will elaborate on this in another entry.