April.7.13Retirement Planning
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Nimi Akinkugbe
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Are you on the other side of 45 and have little or no retirement savings? Have you ignored this most important stage of your life and suddenly find that retirement is looming? Very few of us save enough for retirement and most people will fall short. Research has suggested that retirees will require about 60 to 70 percent of their pre-retirement income, to live just moderately well during retirement.

There are so many diverse reasons why people find themselves in this precarious position. Some have simply lacked the focus or discipline to save, whilst others find themselves at the centre of some catastrophic life event such as the loss of a loved one, a major illness, disability or divorce that can have dire financial consequences.

Do a reality check

Be realistic about your actual situation – how prepared or unprepared are you? It is important to go through some key steps. First, find out how much you have got right now. Start by pulling together financial information such as your bank statements, and your projected pension payout or a gratuity if you are fortunate enough to have one. Take stock of all your assets. Even if you haven’t been saving as judiciously as you might have, you have probably built up some assets that could play a role.

Then determine how much income you think you will need in retirement. There are several good online retirement calculators to help with this exercise. And don’t get too bogged down by the different ways of calculating; a rough estimate will do and even then, be very conservative in your estimations. Finally, look for where that income could possibly come from.

Cut right back on your expenses

How much are you spending today? You must have a clear idea of where your money is going before you can ascertain where additional funds will come from. You will need to cut back drastically on any unnecessary expenses. If you have still got dependent children and elderly parents to support, prioritize and do only what absolutely must be done. If you have become the one stop shop for bailing out members of the extended family and friends, you really must learn to say no. Retirement savings must become your priority and everything else has to take a back seat.  Non-essential expenses like eating out often, travel and shopping can easily get out of control.

Start saving a much as you can

It is important to seek professional advice. A financial advisor will dispassionately consider your current and projected circumstances. If you are in debt, start applying as much as possible to reduce this to free up money for retirement savings over time. An advisor will recommend various options that might include an automated savings plan where funds are debited directly from your salary and into savings; this could include fixed income, balanced or equity funds as well as other investment vehicles.

Don’t be too aggressive

You cannot afford to ignore your risk tolerance in your attempt to make up for lost time. Volatility is a reality in investing; as retirement approaches, there is little room for error and one must be more conscious of protecting the nest egg from the risk of loss; a severe market downturn can be disastrous as you will have far less time for the market to correct itself or for you to recover from poor investment decisions. Stocks do promise larger returns on investment but over the long term.

At the same time you can’t afford to be too conservative and have inflation eat away at all your savings. Bear in mind, that if you retire at 55 or 60, you may still have over twenty years to fund and should continue to have a long-term view; thus you still need at least a portion of your portfolio in stocks until retirement, when it is usual to want to scale back your equity exposure and seek more conservative income generating securities.

Your home can play a role

Do you have equity in your home? If your home is relatively valuable and your children have left home, if you are not too overwhelmed by sentimental attachment, a house that has appreciated in value can be sold and a smaller less expensive home purchased in its place. This could produce significant sums to fund retirement if you are prepared not only to move to a smaller home, but perhaps to a less expensive area.

Be conscious of the fact that falling property prices and a liquidity crunch have made it more difficult to sell property at a premium. If it is your intention for your family home to be the source of some of your retirement savings, be mindful of the fact that there is no guarantee that you will be able to sell the house when you need the money. This could force you to sell it for less than it is worth. Whilst it may take some time for real-estate values to recover fully, it is still likely that one will realize some equity albeit less than one had hoped for.

If you live in an area with a high cost of living, moving to a less expensive area could make a big difference in your ability to amass a tidy sum. Obviously most retirees would rather stay in place than have to start a new life somewhere else, but many do opt to move, and some even go abroad in the quest to improve their living standard at lower costs. This takes several years of planning to ensure that you meet the immigration requirements. If you would consider such a change, spend some time in your chosen destination to make sure it is a place that you can indeed live in before you sell up and relocate.

Postpone retirement?

If you done all your sums and clearly still won’t have enough in retirement; you have two choices: You may need to scale-back your retirement goals and lifestyle drastically, or you may have to postpone your retirement date. Don’t view this as a failing in anyway. You are not alone and more and more people are working past traditional retirement age.

Working a little longer or part time can improve your financial prospects significantly, as you will be able to invest these earnings and feed your retirement portfolio until you have to dip into it. Staying at work longer, will also keep you active, more socially connected and engaged. Plan for your retirement independent of your spouse other family members’ provision. They may not be able to help.

Leverage on your skills or talents

Can you create another stream of income to devote to retirement savings? Most people have a talent or something that they are naturally good at or enjoy doing? Explore your options; it may well be something that you may have taken for-granted and would do for free, that could turn into a side business. This could include tutoring, teaching a musical instrument, consulting. With all your years of experience and some creativity you should be able to leverage on your skills.

Time is precious

No matter how precarious your finances might be approaching retirement, there is always some way to improve your situation. You cannot make up for an entire career of not saving by trying to fast track your saving in the last 10 years of your working life. But there is enough time for you to make an appreciable difference in your retirement lifestyle.  Don’t let doubt or discouragement keep you from starting right away, regardless of your age. All is not lost, but time is a critical factor so don’t procrastinate a minute longer.

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