People around the world are living longer and many people outlive their money as well. Underestimating longevity means that people are at risk of using up all their savings and investments while they are still alive. They then need to rely on either children or the goodness of other people to look after them. Also, the costs of old-age care are expensive and rising and are often not factored into long-term financial plans. Preparing for your retirement can be a daunting task and figuring out the best possible trade-off between a better lifestyle now and more secure future is also challenging.
Living too long – will your money last?
For part 2 of our 5-part series about “life’s 5 problems”, we will investigate the next problem many people face and that is living too long and outliving their resources. To have a comfortable retirement you need to start building your financial cushion. The earlier you start, the better because you can take advantage of the effects of compound interest.
To start your retirement planning you need to think about what your ideal retirement situation is, how much money you will need and how long you have left to prepare for that ideal retirement. Once you have established goals and a time horizon – you then need to investigate the retirement products and accounts you have available to make the most of the benefits that retirement accounts offer.
So, what can you do to be better prepared to make a smooth transition into retirement?
- People are living and working longer.
It is well-known that medical advancements, together with healthier diets and lifestyles, mean people are living longer, which brings an increased risk of people outliving their retirement savings. There is also the added complication that investment markets, traditionally a safe haven for the retirement pot, are becoming more volatile. The first option that you may consider is working longer – this will help keep your brain active and give you a sense of purpose. Working longer allows you to keep building your retirement fund to give you the financial cushion you need when you retire.
- Understand your time horizon and retirement needs and goals.
Your desired retirement age from your current age will create a base for you to plan around and gauge how much you will need to save each month to achieve your retirement goals. The longer you have to retirement – the larger your risk appetite should be in order for you to maximize on your future returns. If you are approaching retirement age – your portfolios should shift towards less risky investments so that you can preserve the wealth you have accumulated.
Having an accurate estimate of post-retirement spending and understanding those expenses is the next important step. If you understate the expenses you expect during retirement – you will quickly outlive your financial resources. You should also review your retirement plans at least once a year to make sure you are on track to your financial goals.
- Tax benefits of retirement annuities and disciplined savings method.
Retirement accounts offer several tax benefits and incentives up to a certain maximum. Knowing how to take advantage of these benefits can make some extra cash available for your retirement. Retirement annuities are not only a vehicle to save on tax – they provide people with a contractual and disciplined way to save on an on-going and regular basis especially since the accumulated capital cannot be accessed until 55 years of age. Financial Advisors are product and industry experts – so having a Financial Advisor look at your portfolio to identify any potential shortfalls is a good idea – especially the closer you get to retirement.
Retirement is a major milestone in life – and it is an important one. If you do not plan properly for your retirement, you can easily overspend and use up your retirement savings. If you understate the capital you require during retirement – you could end up sacrificing the lifestyle you are used to. Make sure you are honest with yourself about your relationship with money and be sure to address any bad habits you are aware of.
Consider chatting to a Financial Advisor because they are product and industry experts and can offer valuable insights. They can also check your portfolio to be sure that you have planned properly and considered all the various aspects of retirement.
