In planning for retirement is always challenging and intimidating as there are many aspects to be considered in order to take care of all the needs and wants of an individual. Retirement means one stops earning income. There are 5 key elements to be considered when one is planning for the retirement.
1) Saving
Most important of all elements – saving. Without saving, there is nothing can be planned. Often times, individual has to find the balance between the needs and wants which can be one of the most frustrating decision. One shall determine how much he/she can save by setting the goal by putting down onto papers what are the income and expense, thereby setting target he/she can save monthly/yearly.
2) Accumulation
After saving periodically, the next step is to invest to grow the saving. This period is called accumulation. The objective is to achieve at least 2 purposes-
1) To beat the inflation rate at least;
2) Making the money work harder by investing, trying to grow more than the inflation rate.
3) Retirement Age
Another touchy point of Retirement Planning is to plan when one wishes to retire. The younger one wishes to retire, the more retirement nest egg is expected to be ready. The older one can retire, the lesser retirement egg is required. Wishing to retire early as soon as possible may be dream of some, but to generate more saving may be a challenge, or the high expense during during retirement (drawdown) may delay one Retirement Plan.
4) Draw Down
When one retires, means he earns no more income from his job. However, expenses to maintain lifestyle continues. Hence drawing down the retirement nest egg that he/she has been accumulated during the productive years is inevitable. The amount to be draw down, and the number of years one can draw down is another challenging variable and unknown that need to be projected appropriately. It is to avoid the situation of life expectancy outlast the retirement nest egg.
5) Life Expectancy
As medical technologies improve, we live longer. According to Department of Statistics, life expectancy (at birth) has grown from 62.9 years old during 1960 to 83.2 years old today. Likely life expectancy will improve further as time goes by. This is an important parameter too. Without a meaningful assumption, we might be caught in the situation whereby we have no sufficient retirement nest to last or we have drawn down too much too early.
Conclusion
Financial Planning for Retirement is an art that need constant adjustment throughout one’s productive year, and even during the draw down period. There is no one size fits all solution. It differs from one person to another. It is never too early to start planning nor it is too late to plan. Now it is just the right time to start planning.
