Personal financial planning series – Planning for retirement

Today we continue with our PERSONAL FINANCIAL PLANNING SERIES.

Today I want to chat to you about PLANNING FOR RETIREMENT.

When it comes to Personal Financial Planning, many do not make adequate provision towards their retirement.

“The wise man saves for the future but the foolish man spends whatever he gets.” (Proverbs 21:20)

A Long term plan…

It is very important that you invest part of your income on a consistent basis over the long term towards your golden years. You need to build this to your budget. If you don’t, you are not going to be able to retire.

Planning for retirement is all about building up a nest egg to provide for your retirement years. It is therefore critical to have a plan. If you don’t pay your electricity you sit in the dark, and if you don’t put savings away for your retirement, one day you will also sit in the dark.

When you retire it is advisable that you have enough money available to…  

• settle debts,
• set up a cash reserve for unexpected emergencies and expenses that may arise from time to time,
• have a nest egg to fund your dreams, and
• THE MOST IMPORTANT NEED: TO SECURE AN INFLATION LINKED INCOME that will cover your living expenses during your golden years, without running out. 

Due to poor planning and a lack of discipline, many are NOT able to retire financially secure. The shocking reality is upon reaching retirement age…

• many are left dependent on their family,
• many are forced to continue working,
• many are left dependent on a government pension grant, and
• ONLY a few are able to retire financially secure.

How much do you need in order to retire financially secure…

The 2% rule…

There is a “rule of thumb” that basically says that for every year that you belong to a retirement plan, you will receive 2% of your final income at retirement if you save 15% of your income towards your retirement.

In other words, if you belonged to a retirement plan for 50 years, you should receive 100% of your final income at retirement (ie. 2% x 50years = 100%). If you were only a member of a retirement fund for 15 years, the 2% rule of thumb will mean you will retire of around 30% of your final income.

Now when most people retire, they are able to live on less than they needed during their working career. The reason for this is that when one retires, the mortgage bond and other debts are usually settled, and children are usually grow up and self-supporting, and the old age retirement grants and discounts kick in, resulting in the costs of living being lower. Statistics show that most people who retire are able to live on around 60-80% of their income.

The 4% rule

The 4% rule states that you can draw 4% p.a. from your investment portfolio at retirement, and you should be able to live comfortably without ever running out of money during your retirement years.

If you take 4% of your investment value and divide it by 12, it will give you a monthly number that you can safely withdraw every month.

The 4% rule is a simple rule of thumb that you can us to measure if you have saved enough money to retire on. Do the math. Apply the 4% rule to your current investment portfolio and measure it against your current earnings.

Avoid the pit falls…

Unfortunately many do not save enough towards their retirement. The reasons for this include…

• Poor money management and a lack of discipline, where many spend more to have a good lifestyle now, at the expense of building up a wealth portfolio for the future. A good balance is required.
• Many have a short term mindset. In order to grow one’s money to build up sufficient capital to fund retirement, you need to set part of your income aside in growth investments over the long term, where you can benefit from the power of compound interest and growth.
• Many start saving for retirement too late in life. If you do not start investing before age 45, you will need to save 3 times as much as if you start investing at age 25. You cannot delay your investing decisions. Start early. Automate it. Allow compound interest and growth to work for you over the long term.

In the modern world, many move around from one job to another. Instead of leaving their retirement money to grow, they end up cashing in their retirement savings early instead of letting it grow, every time they leave on company for greener pastures. This greatly impacts retirement as money needs time to grow. By drawing funds allocated to retirement prematurely, you end up severely impacting your income at retirement.

• Also, many work for small companies and have no retirement plan. There is also an increase in people running their own small businesses, and many entrepreneurs do not save enough towards retirement as they plough their money back into their business.
• To exasperate the issue, many are debt ridden which leave them with less disposable income to invest. Not only does this reduce income at retirement, but the added debt that needs to be settled at retirement results in less money available to secure income when it is needed.
• Due to breakthroughs in medical science and greater emphasis on healthy living, many are also living longer. One therefore needs more money available at retirement to fund a longer life expectancy. Alternatively one needs to draw a lower income in retirement in order to stretch their money so that it can last longer.

Be intentional about building up your investments for retirement…

It is therefore important to build a long term investment strategy into your budget. You need to be disciplined and set up an automated system that forces you to save and invest before you spend money on short term needs.

The scary reality is that only a few people reaching retirement age can afford to retire financially secure. It is therefore vital that you put money away to build up funds for your golden years. It takes discipline to build up your savings and investments – the old saying “no pain, no gain” is so true.

Start small. Be consistent. You need to set part of your income aside in growth investments over the long term, where you can benefit from the power of compound interest and growth. Compounding happens when you gain interest of interest and growth on growth, resulting in explosive growth over time. However a short term savings goal makes retiring.

“Whoever gathers money little by little makes it grow.” (Proverbs 13:11)

Start building up your investments. Allocate specific investments over the long term towards your retirement.

Don’t delay, start today!

The earlier you start saving, the greater the amount you will have built up at retirement. Be disciplined and allocate part of your investments specifically towards your retirement planning.

The reason many cannot retire is they don’t save enough. It is therefore important that you become an investor and that you build up wealth portfolio to finance your future. 

You can build up your retirement savings in many ways. The most important thing is that you put funds away and that this money has the opportunity to generate real growth.

A retirement planning analysis…

You can invest in a variety of investments ranging from property, stocks, shares, retirement plans, mutual funds or unit trust funds. The important thing is that you start saving and investing.  

I would propose that you get some advice on how best to construct your retirement investment portfolio in the most tax efficient manner. Set up a meeting with a Financial Advisor who can prepare a Retirement Forecasting Analysis. A comprehensive Retirement Planning Analysis will take your current situation and your future goals, dreams and objectives into account, and will help you set up a simple strategy to build up your wealth portfolio, so that you can have a comfortable and attainable financial future.

“Plans fail for lack of counsel, but with many advisers they succeed.” (Proverbs 15:22)

Start…

So, in conclusion, I’d like to summarize as follows…

Only a few reaching the age of 65 can afford to retire financially secure. Start investing towards your retirement. The earlier you start the better. Retirement may be a long way away, but a delay in saving can have huge consequences. If you plan well, and are disciplined in your saving, you can ensure that your golden years will be spent in comfort. You could also be in a position to bless others less fortunate.

Retirement planning is important. You need to take a number of factors into account. It is therefore advisable that you chat to a Financial Advisor and with their guidance you can construct a realistic plan in line with your needs and objectives, that will enable you to build towards a financially free retirement.

“The prudent see danger and take refuge, but the simple keep going and pay the penalty.” (Proverbs 27:12)

Closing thoughts…

Many plan hard for retirement but forget to enjoy the journey…

“Even so, I have noticed one thing, at least, that is good. It is good for people to eat, drink, and enjoy their work under the sun during the short life God has given them, and to accept their lot in life. And it is a good thing to receive wealth from God and the good health to enjoy it. To enjoy your work and accept your lot in life—this is indeed a gift from God.” (Ecclesiastes 5:18-19)

Set plans. Be grateful. Breathe. Have fun along the way.

Some plan meticulously for retirement but never give a thought towards the life thereafter…

Jesus said “What will it profit a man if he gains the whole world, yet loses his soul?” (Mark 8:36)

You can be the richest person on the planet, but be lost for eternity. Your walk with God is more important than your retirement planning.

If you want to start or restart your walk with God, click here to pray a simple prayer we have set up for you.

Plan…

Once your eternity is secure, create good balance. Get your personal plans and your financial plans in place. Set up a simple strategy of investing towards your retirement, and then sit back and enjoy the journey.

“Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty” (Proverbs 21:5)

Have a great week. God bless you.

Kind regards Clinton.