Last week, I sat looking through the bedroom window of my house in Harare. I began to ask myself if I will be living the same comfortable life after I retire. You see, such reflection is important when you realise that a day will come when you will no longer be drawing a regular salary – retirement time. I proceed this week to look at the need to estimate your retirement needs. This will help you appreciate how much (and through which vehicles) you should be investing now for the future – a subject of another day.
The purpose of financial planning for retirement is simple — to ensure that you have a financially comfortable retirement. I have contended that for the employed, one is rich if they can manage the same life style even when they are no longer on a regular salaried income.
But remember, financial planning is not an exact science. You are dealing with uncertainty and will have to make various assumptions and estimates. These assumptions and estimates can be made based on reasonable and informed judgments about what may happen in the future. As time passes and more information becomes available, you will change your assumptions and estimates and adjust your investment strategy to accommodate the changing environment.
The first step in retirement planning, is to determine what you will need and want during retirement and what amount of income will sustain that lifestyle. One method is to prepare a detailed proposed budget of your living expenses during retirement. Consider such items as housing, food, clothing, transportation, insurance, leisure and recreation costs, medical expenses, and savings. You may want to analyse your current spending habits, and then identify which expenses would decrease during retirement (such as clothing and fuel costs) and which would increase (such as leisure and medical bills). This is a good method for those who are fairly close to retirement, and who can therefore make fairly accurate budget assumptions.
An easier way to start planning for retirement, particularly for those who are under 55 years of age, is to state your retirement income objective as a certain percentage of your pre-retirement income. Many retirees, according to systematic research, live on anything from 60 percent to 80 percent of their pre-retirement income. It’s usually better to plan at the high end of the income range to allow yourself flexibility should your investments not work out as you hoped.
In the coming weeks, we will continue to look at this retirement planning topic, paying attention to the neglected retirement tips. So stay tuned especially those of us who are almost packing our gloves. But remember to retire when you are not tired yet – simply put, retire when you still have the energy to follow-through with your passions without waiting to be completely wasted.
A blessed week-end to you and yours as you give serious thought to the day you will not be on salaried or regular income. That day will surely come and don’t let it ambush you!