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Personal Financial Planning – Planning at Retirement

Welcome to our PERSONAL FINANCIAL PLANNING SERIES. Today I want to chat to you about PLANNING AT RETIREMENT.

As you are no doubt aware, it is vital that one starts saving early for retirement. Over your working career, you need to build up your retirement savings. If you don’t, you are not going to be able to retire.

Statistics show us that very few people reaching the retirement age of 65 are able to retire financially secure. Unfortunately with high debt levels and less savings towards retirement, these statistics are only getting worse.

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 are still a way off from retirement, I want to encourage you to not delay saving towards your retirement. You need to be disciplined and save over the longer term as the impact of compounding only generates explosive growth by investing over time.

If you are approaching retirement, it is prudent to set up a basic financial plan, so that you can be able to retire. So today’s message is especially for those who are approaching retirement. I want to take a look at how you should consider using your funds at retirement to ensure a financially secure future.

I also want to assure you that God wants to walk your retirement journey with you.

Psalm 37:25 “I have been young and now I am old, yet I have not seen the righteous forsaken or his descendants begging bread.”

4 Important retirement planning priorities:

Many plan hard for retirement and save for most of their lives in order to build up a nest egg to fund their golden years.

At retirement, one usually receives a lump sum of cash that needs to last for one’s life time. This lump sum needs to fund income needs through one’s retirement years, and hopefully not run out.

What is a priority?

A PRIORITY is “something that is regarded as more important than another”.

So let us briefly look at these 4 priorities…

  • SETTLE DEBT
  • SET UP A CONTINGENCY FUND
  • SECURE INCOME
  • GROWTH INVESTMENTS

Settle debt

By the time you retire, it is wise to have either settled your debt, or at least have a lump sum of cash available to settle debt.

Debt in retirement can cause stress and much heartache. When in debt, it can feel like you have a leak in your bank account.

Debt erodes your earnings and eats into your cash flow.

Debt in retirement means you will need more income, to fund the extra debt instalments. More income usually results in a greater tax liability.

It is important to pay off your debt before you retire. Make it a priority to settle your debts before you retire.

Proverbs 22:7 “The rich rule over the poor, and the borrower is slave to the lender.”

Set up a contingency fund

At retirement, you need a cash reserve to cover unforeseen needs, opportunities and emergencies that may arise unexpectedly.

Furthermore, in retirement one of the biggest risk costs can be healthcare. Make sure that you therefore have sufficient cash flow in savings to fund major medical expenses. Alternatively, make sure that you have suitable healthcare cover in place to cover potentially high medical bills and to protect your retirement cashflow for yourself, as well as for your dependents.

Make sure that you keep insurance in place to protect your assets or that you have funds set aside to fund replacement costs if something breaks down or needs replacing. 

At retirement it is also important to reward yourself. After all, you have probably saved most of your life to get into a position to retire. So, why not set a lump sum of cash aside to fund a holiday to celebrate the start of your new season?

I would also suggest that you keep a lump sum of cash available in a liquid bank savings account that you can access at short notice, should an emergency or unforeseen event arise.

Set up a reserve fund by setting some cash aside in a bank savings account.

Proverbs 6:6-8 “Take a lesson from the ants you lazybones. Learn from their ways and become wise! Though they have no prince or governor or ruler to make them work, they labor hard all summer, gathering food for the winter.”

Secure income

Once your debt is settled and you have set funds aside as a contingency fund, you need to secure your income to cover living expenses.

Your income investment needs to last for your lifetime.

Your income also needs to keep up with inflation.

It is important that your income takes care of your needs as well as your dependents. 

I would suggest that you choose your income-generating investments wisely.

Income investments can range from compulsory life annuity options to flexible investment options. Income investments can range from guaranteed solutions to high risk options where your capital value can fluctuate. 

I would propose that you err on the cautious side with your retirement income investments. Yes, your investment must have the ability to outperform cash, but too much risk can severely put your retirement at risk if markets go through a crisis. 

Also, at retirement, make sure that you limit your income drawing (live within your means) and ensure that your income investment has the ability to increase annually to keep up with the rising cost of living.

If you are not in a secure guaranteed income investment, I would propose that you stick to a cautious managed approach, where you can grow your investment ahead of inflation without huge volatile swings in value. I would further suggest that you limit your income drawings to a sustainable level. A Cautious Managed Portfolio should allow you to draw an income and generate an inflation linked return, thereby ensuring that you can secure income and preserve your capital so that you do not run out of money during your retirement years. You need to get the appropriate advice. 

Make sure that you secure an inflation linked retirement income to last through your golden years. Also make sure that your income can support your dependents in the event of your death.

Proverbs 14:15 “the wise are cautious and avoid danger, fools plunge ahead”

1 Timothy 5:8 “Anyone who does not provide for their relatives, and especially for their own household, has denied the faith and is worse than an unbeliever.”

Growth investments

Once you have secured your income needs, you should now consider setting funds aside in growth investments to fund your future needs.

It is wise to diversify your investments by spreading them across various funds and vehicles in order to reduce risk. You can consider spreading your investments across various asset classes and geographical regions. I would also propose that you  invest within a selection of asset managers and investment houses. Make sure that you stick with highly regulated companies that have a proven track record.

Your growth investment should have the ability to grow your capital and outperform inflation over time. If your growth investment cannot generate real growth, you are eroding your wealth.

You can also set part of your growth funds aside to leave an inheritance to your loved ones and dependents, and to leave a legacy for the next generation. 

It is however important that you keep part of your growth investment portfolio accessible to meet changing needs. 

Invest part of your retirement savings into a selection of growth investments. Make use of a diversified portfolio that can generate real growth and that can help you meet your future retirement needs and can help you achieve your future dreams. 

Ecclesiastes 11:2 “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.”

Proverbs 13:22 “A good man leaves an inheritance for his children’s children, but a sinner’s wealth is stored up for the righteous.”

Proverbs 13:11”…he who gathers money little by little makes it grow.”

If you are approaching retirement I would propose that you sit down with a financial advisor who is experienced in investment planning. A financial planner will be able to assess your retirement needs, prepare a cash flow analysis and risk profile assessment which should give you a good indication of your ability to retire and how best to construct your retirement portfolio. This process should give you peace of mind.

Proverbs 12:15 “The way of a fool is right in his own eyes, but a wise man listens to advice.”

Proverbs 19:20 “Listen to advice and accept instruction, that you may gain wisdom in the future.”

So in conclusion, if you are about to retire, use your retirement savings wisely. Also, ensure that you have sufficient cash flow to fund your retirement needs. 

If you are about to retire I would encourage you to stick to these 4 IMPORTANT RETIREMENT PLANNING PRIORITIES: 

1st – SETTLE DEBT:

2nd – SET UP A CONTINGENCY FUND

3rd – SECURE INCOME

4th – SET FUNDS ASIDE IN GROWTH INVESTMENTS

Proverbs 20:29 “The glory of the young is their strength; the gray hair of experience is the splendor of the old.” 

Psalm 92: 12 –15 “But the godly will flourish like palm trees and grow strong like the cedars of Lebanon. For they are transplanted to the Lord’s own house. They flourish in the courts of our God. Even in old age they will still produce fruit; they will remain vital and green. They will declare, “The Lord is just! He is my rock! There is no evil in him!” 

May you flourish, and enjoy your golden years.

God bless you.

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