Factors to Consider When Planning for Your Retirement

Factors to Consider When Planning for Your Retirement

By Alice Kamau – Genghis Capital, Asset Management

Introduction

Planning for retirement is essential and should be considered by all and sundry. While retirement may seem a long way off, it’s never too early to start planning for the future. It’s crucial to develop a plan now and think of what you can do to have a secure retirement. To have a comfortable, secure and fun retiral, you need to build the financial cushion that will fund your desired lifestyle.
Retirement planning entails you envisioning the kind of life you desire to live during your post-work years and budgeting for it. When this is done, you ought to put in place a plan on how to get there. It all begins with thinking about your retirement goals and how long you have to meet them. You then need to research the different options available for retirement savings plans that guarantee returns on your fund, hence allowing your money to grow. Retirement is not just about one’s age; it is also a financial number!
To guide you while taking this vital step, below are some factors to consider when planning your retirement;

  1. Understand your time horizon.
    Time horizon refers to the number of years you have before retirement. Your current age and expected retirement age create the initial groundwork for an effective retirement strategy. Understanding this will enable you to efficiently plan on the type of investments you need to make for your retirement. The longer the timeline between today and retirement, the higher the level of risk your portfolio can withstand. If you invest through a retirement benefits scheme, you can choose a segregated fund with a moderate to aggressive investment strategy and benefit from the high-risk high-return. On the other hand, if you have fewer years to retire, your investments should be focused on the preservation of capital, and for a retirement benefits scheme, this would mean investing through a guaranteed fund. (Delve into the difference between Segregated and Guaranteed fund in our blog post: Understanding Retirement Benefits Schemes Segregated Funds vs Guaranteed Funds)
  2. Keep a retirement budget.
    When it comes to retirement, one of the main concerns is the longevity of your retirement savings, and this is mostly dependent on your withdrawal rate. Keeping a realistic budget goes a long way in projecting how much you need to save for retirement. Accurate retirement spending goals help in the planning process, as more spending in the future requires additional savings today. Having an accurate estimate of your retirement expenses is essential because it will affect how much you withdraw each year. The smart way to determine your retirement budget is to gather all your expense receipts and identify your current spending. If you understate your expenses, you easily outlive your portfolio, and if you overstate your costs, you risk not living the kind of lifestyle you want in retirement. Investing your retirement savings in an income drawdown fund also helps with longevity as the fund has set rules that ensure you don’t withdraw all your retirement savings at once and ensure that the money lasts you for a longer period of time.
  3. Pay off your debts
    It is advisable not to have any pending loans as you draw closer to retirement. As you plan for retirement, you will need a plan to reduce your debt as much as possible. Debt obligations represent a drain on your income as you are paying interest to someone else rather than using the money for your benefit. The fewer encumbrances you have for your money, the more likely you will enjoy a successful retirement.
  4. Start now, and keep reviewing your retirement savings levels.
    If you start saving late, make sure you are saving as much as you can to make up for lost time. As you save, it’s also important to review your retirement savings annually to ensure you are on track to meet your retirement goals. If you are behind on your target, you need to save more, which may require taking on an extra job, downsizing your expenses, etc. Keep in mind that it is easier to sacrifice now compared to later.
  5. Determine your retirement health care needs.
    Having a healthy lifestyle early in life gives you a better chance of finally living the kind of life that you desire in retirement. We may not feel the effects of an unhealthy lifestyle now, but the effects start to manifest themselves as we approach retirement age. Medical care is one of the most significant expenses at retirement and thus an essential factor to consider during the planning process. Ensure that you factor in health care into your retirement budget. In addition to a healthy lifestyle, its prudent to save for medical expenses. You can do so in a post-retirement medical fund and have a separate fund that will take care of your medical expenses to ensure that they do not deplete your retirement savings.
  6. Have your affairs in order; Consider estate planning.
    In addition to planning your finances for retirement, you should think about what happens after you pass on. Figuring out what you want to happen to your estate is a way of protecting your assets. You might also need to consider what happens to a spouse or other dependants and make arrangements to cover a shortfall in pension payments or other income in your absence.
  7. Have your affairs in order; Consider estate planning.
    In addition to planning your finances for retirement, you should think about what happens after you pass on. Figuring out what you want to happen to your estate is a way of protecting your assets. You might also need to consider what happens to a spouse or other dependants and make arrangements to cover a shortfall in pension payments or other income in your absence.

Conclusion

As you start your journey to retirement, you might need some help with planning. A financial advisor can help give you peace of mind by guiding you through the planning process. They can offer you multiple scenarios, then guide you through choosing the best strategy for a successful retirement. Retirement is a full-cycle life change that will mean not only preparing your finances but also your body, your mind as well as your habits.

To reach a Genghis financial advisor, email us at distribution@genghis-capital.com.

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