Planning for your Golden Years: Retirement Planning
One of the hardest parts about preparing for retirement is our inability to think about our lives 20 or more years into the future. As humans, we generally are unable to look too far beyond the horizon, and so retirement often seems like an impossibly distant goal. As a result, many of us get so overwhelmed thinking about saving for an unknown future, that we end up not saving at all.
So, how can you have the retirement you've always dreamed of? After all, I’m sure after all your years of toiling away, you’d love to finally relax and experience all the things you didn’t get to while you were working. Travelling, pursuing passions, spending more time with friends and family — the possibilities are almost endless.
The first place to start is to think about what your life might look like in retirement. Sit down with a pen and paper and write down your retirement needs and goals. When considering your future needs and goals, factor in possible inflation.
Some things you should include in your future expense planning are housing, medical fees, day-to-day expenses, and insurances. After these basic costs, you can then include your additional goals such as travelling. A common estimate is that you will need 70 to 90 percent of your pre-retirement income to maintain your standard of living when you stop working.
Once you have an idea of the ballpark figure of your post-retirement needs, you can then begin to plan. And how do you plan for retirement?
- -Take full advantage of your existing employer provided pension scheme.
If your employer offers a pension scheme, contribute the maximum you can afford to, especially if your employer offers to match your contributions.
Even if your employer doesn’t match your contributions, over time, compound interest and the deferred tax will make a big difference in the amount you will accumulate.
- -Contribute to an Individual Pension Plan.
If your employer does not provide a pension scheme, or you are self-employed, you can contribute to an Individual Pension Plan.
These are schemes regulated by the IRBA in the same way as your employer scheme and have many of the same advantages.
Even if you are employed, you can have an IPP as additional part of your retirement fund, though there is a cap to the contribution amount that will enjoy the deferred tax benefit.
- -Make sure your investment portfolio is well diversified.
When making investment decisions, consider both short-term and long-term benefits and returns. Your investment portfolio should ideally include different asset classes such as stocks, bonds, mutual funds and other assets that fit your risk tolerance, your short-term liquidity needs and your full investment time horizon.
- -Have a prudent debt plan.
Ideally, you should take your larger, longer-term loans (such as a mortgage), earlier in life to ensure you are fully paid up by the time you are retiring. In reality though, this is not often possible. Therefore, plan around your debt to ensure that you are paid-up or close to paid-up before retirement.
- -Plan where you will live.
Gone are the days when we could assume our children would house us and take care of us in our old age. Cultures have changed, and the economy has become so harsh that relying on your family may not be possible anymore.
So where will you live? Not everyone wants to (or even can) own a home. If you don’t think you will have your own home by the time you retire, where you will live could have a big impact on your expenses. Do you plan to move upcountry? Will you move into a smaller house?
Begin to consider these sorts of scenarios, and plan for the best one for you.
- -Prioritize saving for retirement.
Because retirement is such a distant goal, it is often the one we put least emphasis on and start working towards the last. But, it's important to begin planning for it as early as possible and to set realistic goals so that time is on your side. The sooner you start saving, the more time your money has to compound. Make saving for retirement a priority.
In summary, even if you started saving and investing for retirement late, or have yet to begin, it's important to know that you are not alone, and there are steps you can take to increase your retirement savings.
Make a plan, stick to it, and set goals. Remember, it’s never too early or too late to start saving.
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