Essential Tips When Planning for Retirement

 

1 When should I start planning for my retirement?

We recommend to start planning for your retirement as early as your 20’s. Many people wait till they are well into their 40’s with only 25 years or less to start preparing for retirement. We recognize that not many individuals in their twenties are thinking about retirement planning. However, the earlier you start the more money you will have for your monthly expenses and any other luxuries that you have been considering upon retirement.

 

2 How Long Will My Money Last?

This is one of the most difficult questions to answer. You would have to consider factors such as how long you will live, how much you will spend, what rate of return you will earn on savings and investments and the types of medical expenses you will incur. Once you have projected these items, you can estimate how long your money will last. However, rather than settling on a “number” it is best to come up with a few different scenarios that show you how much you would need if your returns were lower, or if you spent more. This type of planning will give you a range of savings needed, which is a better, more conservative approach than targeting a single number.

 

3 What Type of Investments Should I Make Now to Prepare for Retirement?

Understanding that it is never too late to start thinking about your retirement plans, what guides the decisions for choosing the composition of the portfolio is the amount of time you have till you retire. If you are in your 20s or 30s then you have the benefit of time and can afford to take more risky investments such as stocks or real estate as a greater percentage of your portfolio, maybe between 50-75%, as the prices of these assets perform better over time thereby giving you capital appreciation and dividend income.

If you are older heading into your late 40s and early 50s the composition of your retirement portfolio should start to change and be more skewed toward predictability of income. Bonds, Fixed Deposits and Money Market Mutual Funds, which typically have a lower risk profile, would now play a greater role, around 40-50% of your total portfolio, as you draw closer to that last pay-check. These instruments allow for capital preservation and giving you the investor a sense of safety knowing that your hard earned money has worked for you over the years and you want to ensure the nest egg you have built is safe.

 

4 Should I Take My Pension as a Lumpsum?

Many pension plans offer a lump sum option or an annuity option that pays monthly income for life. Before making such a decision you should carefully analyse the lifetime outcomes of each choice. Be sure to thoughtfully examine your pension choices in light of your entire financial picture before you make a decision.

 

5 What happens if I don’t save enough for retirement? Or if I make the wrong investment choices?

Thinking about “worst-case” scenarios like this is never fun, but it’s important to understand the consequences.

• You may have to work longer than anticipated.
• A health issue or an unexpected situation could put you in serious financial trouble.
• You won’t have the cash to maintain your current lifestyle, or live out your retirement dreams.
• You won’t be able to capitalize on compound interest— one of the secret ingredients to building wealth.
• You could get lower than desired returns, or even lose money (if you choose the wrong investments).

 

6 How Can I Make Money Even After Retirement?

If you don’t have a stable job or if you have not saved as much as you would like you can consider:

• Pension Funds: Does your job offer you a pension? Ask your HR person, so you can plan ahead accordingly.
• National Insurance Scheme (NIS): By law, every working person must pay into the NIS from 18-years-old. But this also serves as a source of funding for retirement.
• Working During Retirement: Having a part-time job can be a good way to pull in some extra money when you're retired.
• Turning Your Home into a Money Maker: Everyone could use a little extra money. If you’ve got an extra bedroom, you can turn your home into a bed and breakfast or a long-term rental.
• Create a Nest Egg: As you make a plan for putting money into your nest egg, it doesn’t mean you have to stop enjoying life. The key is to establish a budget. Over time, you’ll get used to it, and you’ll learn how to live just like you did before. Only now, your money will be working for you; and your nest egg will be growing.

 

7 What financial tips can I implement when saving for retirement?

• Look at what you’re spending: Cut down on things you don’t need. Save money by cooking at home, rather than going out. Try to get a little more life out of your clothes and shoes, before buying new ones.
• Figure out how much to save and invest: Have a financial planning conversation with a licensed financial advisor. Figure out how much you need to save and invest in order to retire.
• Understand risk: Sure, that new stock your uncle is raving about could make you rich. It could also make your investments disappear. A financial advisor can help you figure out the right balance.
• Put more in when you can: A work bonus or income from side work can sometimes be the key to growing your nest egg to where you want it.
• Downsize your home: If the kids have moved out, switching to a smaller home could save you a lot of money.  It may even give you enough funds to purchase another property that you could rent.
• Don’t dip into this piggy bank: Nothing can devastate your retirement savings more; build a separate emergency fund instead.
• Talk to our experts: Reaching retirement takes a plan. We are here to listen to your goals and assist you in creating a plan that gets you to that goal.