August.20.21Retirement Planning
Money Matters with Nimi

How would you like to spend your retirement years? Will your nest egg be able to provide the kind of lifestyle that you have become accustomed to and how much will it cost?

Sadly, many people end up impoverished in their later lives or are totally dependent on their children or other family members. Yet, other retirees are redefining retirement as an exciting time to explore new interests. No longer the end of work life, it has become a new beginning, often the start of a new career, world travel, going back to school, starting a new business venture, spending more time with family, or engaging in high impact philanthropic ventures that change lives.

Here are some issues to consider as you plan for your retirement.

Consider these scenarios:

Several rounds of daily golf may be one of your goals; or it could be world travel, spending more time with your children and grandchildren, or pottering around the garden. At last you can take your passion or hobby to new level and maybe even build a business out of it. If you have never had time for a hobby or a new vocation; this may be the time to take one up.

You might want to give back to your community by being a volunteer at your Church or a non-profit organisation. The world of philanthropy may open a new and fulfilling world. You can go back to school just to learn about a subject you’ve always been interested in. Or do you want to share the immense knowledge and experience that you have garnered over so many years by teaching?

The possibilities are endless; ideally this should be the time of your life where you can open yourself up to new and exciting opportunities to keep you productive, mentally stimulated and fulfilled. Yet, for many people, an uncertain future clouds these rosy pictures and they may never become a reality without adequate preparation.

How much money will you need?

Thanks to the Pensions Reform Act, 2004, most of us are aware of the importance of pensions, and retirement planning. Pensions, whilst they are an important part of retirement income, will very rarely cover all your retirement needs if you wish to maintain a certain standard of living during your retirement years. Your retirement income should be supplemented with income from other personal savings and investments.

Everyone’s retirement goals are unique and a function of their own age, stage, and financial situation. As life spans get longer and it is not unusual nowadays to spend over twenty years in retirement, so you need to be sure that your financial resources can last as long as you do. If you were to retire at 60 and then lived for at least another 20 years, how much income would you need for each year of your retirement, and how much do you have to save now to generate that kind of income to afford the lifestyle you desire.

Your current income is a good starting point for calculating your retirement savings needs. Experts estimate that most people will need between 65% and 80% of current income to maintain their current lifestyle when they retire. Online retirement calculators are available at several websites including those of the Pension Fund Administrators. These are useful tools to help you to estimate how much you will need in retirement.

Start early

In your 20s and 30s, retirement seems a lifetime away, but it’s never too early to start planning for it right from your first job. Those who start saving for retirement in their 20s have a better chance of building a large nest egg and achieving sustained financial success. Saving even a small amount on a regular basis can add up to a tidy sum over a long period of time. If you are young with retirement still decades away, and with fewer responsibilities, you can afford to assume more risk and can ride out the inevitable market volatility of the stock market to achieve higher returns over the long term.

Educate Yourself

Financial security and knowledge are closely linked. It is important to have a broad understanding of the basic investment principles; how you save is just as important as how much you save. Educate yourself on the different savings options available and what might work for you. Seek investment advice from your Pension Fund Administrator or your financial advisor. Monitor and review your savings and investments over time to ensure that they are still appropriate for you.

How much risk can you afford to take?

Your investment portfolio should be tailored to reflect your age, the amount of money you have and will need, and your risk tolerance. Inflation and market volatility have forced investors to face the reality of their financial position.  With the specter of inflation always lurking, and the possibility of spending more than two decades in retirement, your investment earnings will have to keep pace in order for you to have any chance of maintaining your current standard of living.

The type of investments you make play an important role in how much you would have saved at retirement. A diversified portfolio of cash, bonds, stocks and real estate will help to protect you from investment risk. You don’t want all your retirement funds invested in high-risk investments, in spite of the higher yields this might generate you need to balance risk and return in order to achieve your goals. The asset allocation will largely depend on your risk tolerance and how long you have until your retirement. As you move closer to retirement your investments choices tend to become more conservative and geared more towards income generating options.

Health is Wealth

Whilst we all pray that we will enjoy good health in our later years, the reality of declining health as we age should be addressed seriously in retirement planning. Even the most elaborate retirement savings and investment plans can be decimated if you find yourself with health challenges and without adequate health insurance in place. It takes just one major illness to wipe out several years of saving and investing. No matter how healthy you currently are, build a financial cushion that allows for unexpected expenses and do not ignore your health insurance. The endless opportunities in retirement can only be attained if you have saved and invested wisely and remained fairly healthy.

Enjoy your retirement

After several years of hard work, your retirement years should be one of the most rewarding of life’s stages and an opportunity to fulfil the dreams that you finally have the time to pursue, free from routine constraints. Today the responsibility for building your nest egg and ensuring that it supports you for the rest of your life rests squarely on your shoulders. Make saving for retirement a priority and start now.

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