IN a television interview recently, I was asked to state a reasonable amount that an individual can save to live comfortably in retirement. This is a question that is often posed by persons when planning for retirement.

There is, however, no magic figure as one size doesn’t fit all. Regardless of the various formulas to calculate retirement income, there is one thing that remains true about retirement — we all need to have streams of income. This has been proven by global research as people with one stream of income find it difficult to keep their heads above water during retirement. The challenge with retirement planning is you don’t know how long you will live. For those who who plan retirement income solely from a pension plan may see the value eroded over time due to inflation, coupled with unforeseen expenses such as major medical bills or huge health care costs. You can be at risk of having too little money in retirement but you cannot have too much money. The retirees’ first five years in retirement may give the impression that all is well, but the ever-present threat — the silent thief called inflation — will rob your money of its purchasing power as you age.

One recommendation is to save 25 per cent of your gross income starting in your twenties. This percentage should include not just a pension plan but other types of investments such as stocks and bonds, geared at providing adequate retirement income. The other alternative is to save 10 times your pre-retirement salary for your golden years. With the 20 per cent contribution ceiling on private pension accounts it makes sense to have other investments to provide adequate retirement income. Inconsistent saving and low pension contributions can pose a problem in the latter years when contributors get nearer to retirement, facing the harsh reality that they did not save or invest enough to live comfortably in retirement. The situation gets worse in instances where there is no wiggle room for pension contributions to be increased.

During the working years, the lifestyle and standard of living of the average low-wage earner is a stark contrast to that of the high-income earner. Twenty per cent of $100,000 is not the same as 20 per cent of $1,000,000. However, their wants and needs are different and their income helps to determine the amount that can be saved, spend, or invest. The same is true in retirement.

Having income from different sources is the key to a comfortable lifestyle in retirement. It’s best to create these income sources during the working years and benefit from the wonders of compound interest in the retirement years. Investing in the stock market will pay handsome dividends for retirees who choose this income stream as a source of income. Also, investing in dividend stocks will maximise your income in retirement.

I have elderly clients who are living comfortably in retirement from dividend stocks.They have been investing in the stock market for decades. The quarterly dividends are invested in low-risk investment accounts from which bills are paid and in some cases the funds are used to satisfy emergency needs. I interviewed an elderly retiree who receives dividend cheques every quarter. He sold his business and is investing the proceeds to provide additional income in retirement to maintain the same standard of living he enjoyed while working.

Ignorance of the financial rewards of investing in the stock market has caused some retirees to outlive their money in retirement. The stock market rewards those who are patient. During times of stock market declines these clients were being paid dividends. When the market is booming these investors also benefit from the tremendous growth and value of their investment portfolios. Some retirees rebalance their investment portfolios by selling some of their shares to provide current income. Their goal is to enjoy financial freedom and leave a legacy for the next generation

If you are a pre-retiree and not sure that you have saved enough for retirement, you may consider working part-time for additional earnings. Some individuals may need to postpone retirement for a few years and give their pension funds and other investments more time to grow. Curtail spending. You can create a source of income by converting a hobby into a business. Rental income can also be a significant source of income for retirement. Creating sources of income will alleviate anxiety and the fear of outliving your money in retirement. But please speak with a qualified and experienced financial advisor as investors who obtain the professional services of a financial advisor earn more on their investments.

Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at: gmclean@bpmfinancial or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at livingaboveself@gmail.com