It’s your choice: save now or work later

When it comes to pension-planning, most younger and many older people put off making adequate provision. This decision is costly: in the long run it can make it impossible for them to achieve the retirement lifestyle of which they dream.

For many Brussels-based people, the subject of retirement provision is covered by the simple phrase, "I am in an EU scheme". Although they may not appreciate it, they are quite likely to be among the luckiest and least financially burdened pensioners in Europe.

The provisions for the future pensions of EU civil servants made a dramatic first appearance in the EU’s balance sheet last year. The switch-over to presenting accrual accounts obliged the Commission to record that the future liability for "employee benefits" stood at €33 billion at the end of 2005. This was balanced on the assets side by a plaintiff foot-note: "Under Article 83 of the staff regulation, the member states shall jointly guarantee the liability for pensions."

For those not in an EU scheme which is underwritten by the member states, funding a pension is likely to be the most expensive thing they will ever do. Even the civil servants of member states may find that they need to put some extra provision in place for their old age.

For those without a government or corporate scheme backing them - and there are many such people in Brussels - retirement savings need to be made the hard way, one month at a time, into a fund with no guaranteed payment or maturity level.

Although most people do not think this through, the frightening reality is that if we want to grow old with a certain sense of style, we need to aim for a retirement fund of half a million euros or more. This may sound alarmist, but some simple calculations will highlight the scale of the amounts required.

If you imagine that your retirement needs would cost roughly the same as your current monthly income, simply multiply your annual net salary by 20. This is a very rough and ready way to find out how much money would need to be in the bank if it was earning 5% each year in interest. This has not taken into account any taxes that you might need to pay in your country of residence on the interest earned by the money.

Living off bank account interest ought to be the aim for us all. It would be as close to a risk-free income as can be generated. Although inflation would eat away at the purchasing power of the money over time, there would be little requirement to use or actively manage the capital.

State provision does help provide for our needs and therefore lowers the personal savings requirement. For many in society, a state pension is their retirement planning, but it is difficult to imagine that many readers of the European Voice will want to find themselves in such a situation.

As might be imagined, forecasting the financial needs of a person, or a couple, decades into the future is not easy. It is even harder to try to estimate the likely payout and purchasing power of a fund. There are so many unknowns - future rates of investment growth, inflation and interest-rates being the largest - that a meaningful forecast requires Nostradamus-like powers.

However, it is possible to recommend an amount that needs to be saved each month towards a comfortable old age - "as much as possible".

The later in life an individual starts to make retirement provision, the greater the amount that needs to be saved each month to reach his or her own acceptable standard of living. If a first start is not made until after the age of 40, it is a safe bet that the required monthly figure will be in the multi-thousands. Understandably, such a sum is outside the range of most individuals.

This means that everyone needs to begin saving as early in life as they can and save as much as they can comfortably afford. Otherwise, the prospect of working on into later life may become an unpleasant reality.

• Stuart Langridge is an independent financial adviser.

When it comes to pension-planning, most younger and many older people put off making adequate provision. This decision is costly: in the long run it can make it impossible for them to achieve the retirement lifestyle of which they dream.