RETIREMENT SHOULD be that wonderful period in life when you no longer have to work nine-to-five, and you have the freedom to enjoy travelling and the pleasures of grandchildren. Unfortunately, many people put off thinking about their retirement until a few years before its occurrence. At that time, the thought of retirement can be stressful and frightening.
To ensure that retirement is a successful lifestyle change for you, it is important to have an effective plan of action. Here is a four-step guide to help you to retire in comfort:
1. GET EXPERT
FINANCIAL ADVICE
Trying to figure out your retirement needs on your own can lead to confusion, uncertainty and frustration. Financial planning professionals have all the expert advice that can take the mystery out of investing for this long-term goal. They will take into consideration your other goals, how much money you have to invest, your time frame and your comfort level in taking risks, and design a workable plan for you.
2. DETERMINE HOW MUCH MONEY YOU WILL NEED
Experts say that your retirement income needs should be about 70 to -80 per cent of your current expenses. Retirement income may be made up of pension and NIS benefits, earnings from business or rental properties, and proceeds from your retirement investment plan.
To plan effectively, you need to have a targeted amount of money that you would like to have in hand when you retire. To arrive at this figure, you will need to consider:
At what age would you like to retire?
How long do you expect to be in retirement?
The effect of inflation on the value of your money?
Using this information, a financial advisor will be able to show you how much you need to invest consistently, so that increasing prices and cost of living do not leave you with an income that can't meet your needs in retirement.
3. INVEST EARLY,
CONSISTENTLY AND SMARTLY
An important step to successful retirement is to start investing early. Compounding interest over a long time will help your money grow faster, and also reduce the amount you need to save regularly to reach your target amount.
For example, 35-year-old Susan is just starting to save for planned retirement at age 60. She wishes to have an income of $600,000 (adjusted for inflation of 10 per cent per annum) each year for 30 years of retirement. Susan will have to invest over $450,000 per year at an average return of 12.5 per cent, and increase her annual investments by the inflation rate, to achieve this goal.
However, 25-year-old Sharon, who also wants the same retirement goal, will only need to save approximately $160,000 per year, using the same assumptions.
With time on your side, you can also afford to take more risks like investing in the stock market, which can help your investment to grow faster. For long-term goals you should look to tax-free investments, as being able to reinvest the 25 per cent of interest normally paid out in withholding tax, would dramatically increase your returns.
4. MAKE FREQUENT
REASSESSMENTS OF YOUR PLAN
It is crucial to monitor your investments carefully, especially as you get closer to retirement age. Ask questions like: Have there been any major life changes that have affected my original plans? Are the financial projections still valid? Can I still afford to retire early? Do I need to curtail my expenses to make it through a long retirement? You will also want to reduce riskier investments and ensure that your funds are going to be liquid and available for your needs. Don't wait until retirement is knocking on your door before you make adjustments to your plan.
The good news is that even if you have started thinking about this long-term goal late in life, you can still make plans towards a successful retirement.
Call 1-888-GET-JMMB today and make an appointment for a free consultation with financial planner and talk to us about your vision for your future.
