Retirement Planning

Retirement is the last phase of the Financial Lifecycle. It’s when you leave the formal work force and look to live life on your terms. While your retirement goals may look different from someone else’s, it’s something we must all prepare for. Your retirement goal may be to:

  • travel around the world;
  • turn your hobby into a business;
  • spend more time with family, especially those adorable grandchildren; or
  • open a bed and breakfast.

Since it’s a long-term goal, we recommend that you invest towards retirement from your very first pay cheque. Doing so means you can look forward to retirement with excitement, as you would have set up a steady stream of income to take care of this phase of your life. In addition, you will benefit from compound interest, which is paid on your principal plus on any interest you have already earned. This means you will earn more interest over a longer period. 

Importance of Retirement Planning

How long do you imagine your retirement will last? It may last a lot longer than you think. According to Money Guide, a 65-year-old married woman in 2020 has a 50% chance of living to age 90! Consider the possibility of your post-career phase lasting for 25 years or more. What would life look like for you? Would you be able to afford the quality of life you desire? 

These are some of the reasons you should invest towards your retirement. 

  1. Maintaining a comfortable standard of living 
  2. Not having to depend on or be a burden to others
  3. Ensuring you have sufficient funds to take your through your retirement years
  4. Having peace of mind

Retirement Planning Steps

To ensure a smooth transition into retirement, you should:

  • get a clear picture of what life looks like when formal work has stopped,
  • identify your desired lifestyle and associated needs and what your living expenses will be,
  • determine any income you will be earning from sources like rental property, and
  • create a retirement budget, which will show you how much you need to invest each month to get to the target retirement amount.

Types of Retirement Plans

The average employer will have a workplace pension plan you can participate in. Invest extra income in this plan and maximise on your contributions to help you get to your goal faster. If you change employers, we recommend that the accumulated money be left, or transferred into another retirement plan.

If your workplace does not have a plan, if you are self-employed or a contract worker, then the best option would be to start an Approved Retirement Scheme (ARS). An ARS is a personalised pension plan that provides a tax-free way of saving for retirement. Your contributions to an ARS are tax deductible, so they are taken out before income tax is applied, which means you pay less income tax. You can contribute up to 20% of your annual income to an ARS. 

What steps will you take to ensure you live securely in the golden years of life? 

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