If retirement is right around the corner…
There are so many things to plan for and consider as your retirement date approaches. Some of these aspects are psychological, and these should not be glossed over. However, your financial well-being has a direct influence on your state of mind.
For this reason, it’s vitally important to ensure that you plan properly from a financial perspective for your coming retirement.
Here are a few points to consider, to balance your retirement needs with your expected retirement income.
The industry standard is that you need to have a pension income equivalent to roughly 70% to 80% of what you were earning just before you retired. But how is this calculated?
Consider your basic needs. These typically include accommodation, food and clothing, medical expenses, and transport.
Which of these are likely to be higher or lower after retirement?
Hopefully, by the time you leave full-time employment, you will no longer have any major debt, such as a home loan. That means this expense is likely to go down – as will your fuel bill if you commuted to the office daily. Similarly, you are less likely to have dependents relying on you financially when you reach retirement age. So, it’s likely that these expenses will reduce.
However, as we age, our health does tend to deteriorate, and this means that medical expenses are likely to go up.
Will 70% to 80% of your final income be sufficient, and are you on track to be able to afford this level of pension?
Consider how long you think you will live. If you are generally healthy, you are likely to live for roughly another 20 years at least, if not more, after you retire. This number goes up all the time, as medical technology improves. Are you financially ready for this?
Consider inflation. Will the money you have saved be able to maintain its purchasing power over the years? Keeping up with inflation is a major factor that you need to consider when choosing a pension product.
Finally, and most importantly: consider the amount you have saved and consult your financial advisor to discuss your options.
There is no one-size-fits-all financial solution for individuals. Make sure you partner with the right financial advisor to consider your goals and circumstances to help you make the best decision.