Hoping to retire one day? Consider this!
Retirement is a huge milestone in peoples’
lives. It has many faces and we reach it in a number of different ways.
Sometimes it happens suddenly, sometimes it is planned for. Sometimes it is voluntary
and other times it may be forced upon.
One thing is certain though, retirement is the single
biggest, most terrifying financial decision people ever have to make…and it
involves large sums of money and lots of emotions.
Financially speaking, retirement is essentially an income problem.
The only two objectives that matter and count in retirement are:
- Lifestyle sustaining income that lasts a lifetime
- The income needs to keep pace with increasing cost of living.
Unfortunately, due to extreme circumstances
(the biggest, the most terrifying and emotional time) the focus of most
retirees is everywhere else but on these two main concerns. The talk is about
certainty and safety. But it is the concept of safety that’s usually misinterpreted
and lures retirees into the trap of a financial tragedy.
Shift in retirement
planning
Most baby boomers have inherited
their parents’ concept of ‘planning’ for retirement – being looked after by
government and/or receive an employer supported pension.
In past, many
employers offered what were called ‘defined benefit pensions’. Although, far
from perfect, these used to be a source of some income, which in combination
with social security income, allowed the veteran generation to live a modest
lifestyle they were used to.
Defined benefit pensions are no
longer being offered. So unless you already have one in place or lined up, you
will have to look after your retirement yourself.
And the social security
pension?
Firstly, it will hardly be enough
to afford you a decent retirement.
Secondly, the demographics of
Australian population are changing – the baby boomer generation has already
doubled the long term average of people retiring per year.
And it continues to
increase it to an estimated number of 140,000 retirees per year in about ten year’s
time. See the graph below:
The wave of new retirees is crashing over the next 30 years - started in 2008
So, what’s the point?
- There is more retirees, with no retirement plans, relying on someone else to look after them in retirement
- The government policies will inevitably have to change to deal with the dramatic increase in demand of age pension applications
- Relying on government support(or any other income support in retirement for that matter) is simply not a sensible strategy if you want to retire on your terms
If you still think that the government will look after you and you are happy with that prognosis, stop reading now. I wish you all the luck in the world.
If, however, you wish to retire
on your terms, keep your dignity throughout your retirement and stay retired
for the rest of your life, you might want to pause for a moment and think about
the steps you are taking towards your own retirement.
We have now established that we
need to shift the focus from government and employer support to relying on your
own savings in retirement.
But you will need to plan to
make sure you’ll be able to rely on your lifetime savings.
Please notice the use of the verb ‘plan’.
There
is no secret to a successful and independent retirement other than having a long
term, time and dollar specific plan which will clearly determine whether you are on the
right track or not.
By having a plan I do not refer to a ‘good’
superfund, a portfolio, good investment returns, low fees, great product
features and benefits, healthy economy etc… etc….
What I mean is addressing and knowing more-less exactly:
- how much money you will need at the time when you retire (so you'll be able to draw a lifestyle sustaining income for the rest of your life)
- how much money you currently have
- how much money you need to contribute each year into your savings in order to get to the first number
- how you need to invest your funds and why
The only way to even begin answering these questions
intelligently is to sit down with a quality financial planner and have an
honest conversation.
This is a first step of the planning process which will
ensure that one day you will be able to look back with a smile.
Because you will have some certainties in life and you will
be in control. And it will only happen if you decide to do something specific
about your future today.
It’s called planning.
by Michal Bodi
Image courtesy of photostock and freedigitalphotos.net