Retirement is one of the most important crossroads we face in our working lives. It involves a fundamental change in lifestyle – one that calls for a totally new outlook on how we approach each day. The transition from an active working life to a life free from the need to work for a living can be a dream come true or a dreadful nightmare, depending on how one prepares for it.
Ideally, retirement draws to a close the culmination of all the years that one has worked. During this time, you are supposed to leave the workforce, reap the fruits of your labour and devote your time on the things that you have always wanted to do. However, before you successfully get to this new chapter, you need to plan ahead, strategise and stay committed to your plan.
Though retirement is something that should excite people, a recent survey by the Employee Benefit Research Institute indicates that only 13% of pre-retirees are strongly confident about their retirement savings. The reason why only a handful is positive about facing their golden years is because only few of them actually plan effectively for that phase of their lives. Majority may have underestimated how much they needed to lock away or may have realized that their retirement planning strategy was not substantial enough at a time when it was a little too late.
Saving and Investing for retirement is very important for anyone who desires to create a comfortable, secure and enjoyable lifestyle for him or herself. Once you retire, it is even more important to know how and when to spend what you have worked so hard to accumulate over the years. According to a survey from Allianz Life, 28% of workers between ages 55-65, are concerned they will not be able to cover basic living expenses in retirement. It is therefore very necessary to ask yourself what you can do to keep yourself from depleting your reserves during your lifetime.
The reality is that today’s retirees can expect to live up to twenty more years after retirement, thanks to continued advances in healthcare and increased life expectancy rates. Consequently, the common investment goal for most retirees is to make their savings last at least for the rest of their lives. However, learning precisely how to do that can be daunting. It is always helpful to speak to a licensed Investment advisor (such as InvestEye), however here are some steps you can take to make your money last for as long as possible after your working life.
1. Don’t Start a New Lifestyle You Cannot Sustain
Retirement provides an opportunity for people to live out their dreams and do the things they have always wanted to do. For example: travel the world, drive luxurious cars and eat in expensive restaurants. If you have budgeted for this kind of lifestyle, then you too can live the picture perfect life after retirement. However, if you have not made provision for such a lifestyle, you can quickly find yourself in financial distress. Retirees are therefore advised to resist from starting a new lifestyle after retirement that they cannot support. This is the time to be realistic and true to one’s self.
2. Get Professional Advice
Managing your finances can be very complicated even if you have some financial knowledge. Hence, seeking professional advice concerning your retirement is an important step in ensuring that you maximize the opportunities available to make the most out of your investments. Make sure that whoever you choose to work with as an Investment advisor is someone you can trust since you will be sharing personal financial information with this professional. Your Investment advisor should be one who listens to you and works with you to identify your financial and lifestyle goals after retirement by drawing the best strategies to enable you achieve those goals.
3. Conduct Due Diligence Before Making Any Investment Decision
In general, due diligence is an investing imperative. It is especially critical for retirees to conduct due diligence before making any investment decision in order to avoid unnecessary and avoidable risk which often result in catastrophic losses. People make mistakes with their retirement money because of greed or ignorance. Greed kicks in when they see an investment that they think will deliver above average returns. When you understand how investing works, you know that the higher the return promised, the higher the risk involved. Many investments that appeal to the greed side of you turn out to be frauds or “Ponzi” schemes. If it sounds too good to be true, please do yourself a favour and walk away because it is definitely too good to be true.
4. Set Aside Emergency Fund
Preparing for retirement is mostly about building up a very large portfolio to carry you comfortably through your golden years. Ideally, retirees must also have an emergency fund set aside as it is not advisable to be using funds from their retirement portfolio as an emergency fund. Large unexpected expenses such as car repair and replacement, uncovered medical expenses and major home repairs will need to be covered from another source other than the retirement portfolio. It is also important to make provision in your budget to regularly replenish the emergency fund. This should be done on an on-going basis to ensure that you always have money available when needed, so that you will not be forced to drain your retirement portfolio by making large lump sum withdrawals when emergencies arise.
5. Avoid Investments That You Do Not Understand
A good investment can turn into a bad investment when you do not fully understand how it works. When you lack understanding or knowledge about an investment, you are more likely to make an illogical decision. If it sounds complicated, or you just do not understand the investment, do one of two things: ask more questions or just walk away. Usually when it comes to investing during retirement, it is advisable to utilize extremely safe investment vehicles that preserve capital and potentially add a fixed amount of income to your nest egg. Good examples of safe investments include: government Treasury Bills, bank Certificates of Deposit (CDs) and interest earned on a money market instruments such as the *InvestEye Monimac Investment.
Saving enough for retirement takes time, discipline and sacrifice. Once you have managed to save enough to live comfortably during retirement, the challenge is making sure your money will last the rest of your life – however long that might be. Given that you faithfully apply these strategies discussed, you are assured of a blissful life after retirement with minimal chances of running out of money.
By: Nana Osae Addo-Dankwa (C.E.O) & Gifty Oye Adjei (Investment Analyst)