Building a financial strategy to cover the next several decades of your life can be daunting, and finding the time to sit down and plan everything may feel like an impossible task.
However, by focusing on the separate stages of the retirement planning process, you can assign little chunks of time to developing your plan and before you know it, you’ll have a retirement plan before your very eyes. It’s all about making progress little and often.
Analyse your situation
First you’ll want to assess your situation. Make a list of the following:
- What savings do you have?
- How much do you have invested? And where?
- How much are your company and/or private pensions worth?
- How much property do you own?
Take a little bit of time to note the current combined value of these assets and you will have taken your first steps into planning for retirement.
Set retirement goals
Write down what you especially want to do in retirement, as this will affect your plan. The budget of a retiree planning to move to a smaller property and live a quiet lifestyle will be vastly different to the budget of a retiree who wants to see the world. Take some time to write out what you’d like to do with the time that you’ve earned. This might include: contributing towards family weddings, buying a car, or helping with a child’s or grandchild’s education.
Set a budget
Jot down an estimated list of regular expenditures you’ll be making in retirement. This will cover housing, food, dining out and leisure activities.
Next, you’ll also want to estimate the costs of any long-term care that you might require, your life insurance, cost of any prescription drugs and doctors visits. Of course, you can’t predict the future. However, people often forget to factor in the somber realities of old age into their retirement budgets and it’s good to get a roundabout figure about what this will cost you.
Identify any incomes
Where’s the money coming from?
Your existing retirement savings would make up the majority of your monthly income during retirement, but there’s a chance that it won’t be the only source. Additional income can come from a number of places besides savings. You may have rental property, investments or a smaller business venture. Estimating how much you’ll be receiving during retirement will help you get an idea of your spending ability.
Confront any shortfall
All of the numbers you should’ve compiled by now should help to give you a picture of whether you can fully fund your desired retirement. If you’ve forecasted sufficient funding, then it’s important to stay on track and keep funding your retirement accounts.
If you haven’t forecasted sufficient funding, then you’ll need to close the gap. You might need to increase your savings rate, cut back on non-vital spending or invest your money with the aim of obtaining returns in the near future, which leads us to our next step…
Assess your risk-aversion
Depending on your distance from your target retirement age, you will want to consider your appetite for risk. As a rule of thumb, the closer you get to retirement, the more risk-averse your portfolio will become, as you’ll want to preserve savings that you’ve already accumulated. There might be a temptation to ramp up your portfolio risk when you get closer to retirement, however, with all investments, even the most secure, there’s always a chance that you will receive no returns or lose money.
Speak to a financial planner
A good financial planner will make sure that a retirement portfolio is in line with your appetite for risk and will be able to provide additional advice around estate planning. Consulting a professional in the area will help to give you peace of mind, so that you’re on the right track to achieving your retirement goals.
For more insight on how to plan for retirement, feel free to get in contact.