The following material was sent into my box by Stanbic IBTC and I felt it would add value to you on the all-important matter of retirement planning. So here goes:Summary:1. Retirement planning has changed and people now work longer2. Before retirement, you can plan for a longer retirement and start following an investment plan as early as you can3. After retirement, its best to plan withdrawals carefully and consider working longer.Retirement planning today is much more different than it was 30 or 40 years ago. In fact, many people dont even relate to the word retirement.Phrases like second act, third age, and refirement have been used to describe the stage of later life when people move from full-time work to other pursuits. Some people have even stated on surveys that they never plan to retire, period.Some years back, defined benefit (DB) pension plans were the norm. Employees were promised benefits according to a formula based on their income and years of service.Employers bore the actuarial risk of setting aside sufficient funds to provide a monthly income stream to workers for life but average retirements were short and lasted only about five years. Today, DB pension plans have been replaced with the defined contribution (DC) plan where workers bear all the investment risk.At retirement, employees have their accumulated savings and investment earnings in their retirement savings account, with no lifetime income guarantees. Retirement income is available only for as long as assets last. Workers are responsible for converting their assets into income. In addition, average retirements today last 25 years with a possible range up to 40 (or more) years, depending on age at retirement, family health history, personal health status, and other factors. All of these trends highlight the need for advance planning and personal responsibility in order to live comfortably in later life. Below are tips to consider before achieving a successful retirement:Before retirement1. Plan for a long retirement: Longevitythe remaining life span for someone reaching a specific age, such as 65has climbed dramatically in the last century. Today, retirements can easily last 25, 30, or more years. Many people under-estimate how long they will live and fail to save enough money to last their lifetime. Check several online life expectancy calculators to provide personal life expectancy estimates based on factors such as current age and health habits.2. Prepare a retirement spending plan: Start with a list of current income and expenses. Look at the list and decide which expenses will continue (property taxes), end (commuting costs) or be reduced (clothing) after you retire; then list new expenses that will begin in retirement (healthcare cost). Finally, do the math and create a post-retirement spending plan where income is greater than or equal to expenses.3. Follow an investment plan:In todays self-reliant retirement planning environment, many workers are their own pension managers. Invest like a financial institution and not a nervous investor based on a well-thought out plan and not driven by emotions such as fear and greed. 4. Invest as much as you can as early as you can:When you get a raise or promotion, increase savings in tax-deferred employer savings plans. Savings will be deducted from your paycheck. Aim to save 10 percent of gross income in your 20s and 30s and gradually boost savings to 15 percent in your 40s and 20 percent or more by your 50s and 60s. Another good time to ramp up retirement savings is when a household expense (e.g., child care or car loan payments) ends.5. Develop an asset allocation strategy and stick with it: Determine a preferred weighting of investments (e.g., stock, bonds, and cash assets). Keep some stock or stock funds in your portfolio to hedge inflation. Periodically rebalance to get back to the target weights. Avoid being a market timer by moving money during volatile markets. Investors who do this often miss the best market days when the market rebounds. As a result, long-term investment performance suffers.6. Work longer Some financial experts recommend working until full retirement age to achieve what is known as a Positive Perfect Retirement Storm. Benefits include: larger pension benefits, additional time for retirement savings plan deposits, continued access to employer benefits (e.g., health and life insurance), additional time to repay household debt and recover from market losses, and a fewer number of years that asset withdrawals are needed. Next week, we shall take the concluding part. Until then, please stay inspired in His presence!
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