ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Be Secure Be Sure Financial Planning for Retirement

Updated on January 10, 2011

A friend of mine used to say that he wished he knew when he was going to die so he could have the perfect financial plan – I think he meant that if he knew how long he had to live then he could manage his money to the last cent.

However, in the absence of a crystal ball, we have the next best thing – the ability to plan. We can take control by planning which will allow us to enjoy the fruits of our labor in retirement and have enough money to last throughout retirement.

Although none of us can know for sure how long we will have to enjoy retirement as some of us will live a short life and some a very long life planning will help you. Here are the four key areas you need to consider as your pre-retirement checklist.

The four questions are:

  1. When do I want to retire?
  2. How much money do I need (or want) to have to live on in retirement?
  3. Where do I want to live when I retire?
  4. What is my attitude to risk? Am I a risk taker or am I risk averse?

Some more information

If you would like to learn more about financial planning then here's a great article:

Financial Planning in a Nutshell.

If you are entering or in retirement then it is vital to protect your assets against the ravages of inflation. It's an article written in everyday language.


When do I want to retire?


The age at which you want to stop paid employment is critical.  If you want to stop work early and enjoy an active retirement then there is a shorter amount of time during which to accumulate funds and a much longer time in which to spend your nest egg of savings.  Furthermore, during an active retirement you are likely to be spending more money.

But if you like your job and heartily dislike the prospect of retirement then so much the better as you’ll be in work and earning money for a longer time.

It pays to be realistic about your goals and expectations.

The “average” scenario is that you want to retire at 65 and that you will enjoy the average lifespan of 81 years for women or say 76 years for men.   Many people live longer than average to be 90 or older, so it is probably wise to plan for a conservative view especially as successive generations live longer.

Plan for your money to last at least 25 years in retirement, and longer if there is longevity in the family genes.

Now that seems like a long time for your nest egg to last.  And it is!

How much money do I need (or want) to have to live on in retirement?

The most important point to note here is that the amount of money you will need in retirement will be a reflection of your current lifestyle. Yes its true and it’s the best guide.

Therefore it is vitally important you understand where your money is going today. Most people have a good idea of their income but only a hazy idea of their outgoings. It is only by having a handle on how much you earn and where you are spending it that you are in control and able to make sensible decisions about it.

If you enjoy regular dinners out with wine, you are probably going to want to continue with this type of spending during your retirement. Likewise, if you enjoy regular holidays abroad then, for a time during retirement you will have more time to indulge in this type of traveling and will need to allow the funds to continue doing this.

Conversely, if you are happy with a week or two in a remote rustic cottage, or pitching a tent somewhere, then the money you will need to allocate for holidays will be less.

What this means, is you need to have a clear idea of what you spend now and how you spend your money currently.

During retirement some costs may decrease such as a work wardrobe, car running and parking costs. Some insurances will no longer be necessary. But some costs will increase such as medical care and holidays.

When contemplating retirement I recommend you prepare two budgets – one for your current spending and one with adjustments to allow for a different lifestyle in retirement.

We All Want Our Investments to Go Up All the Time. The reality is different!

What is my attitude to risk?

The risk you are prepared to take with your investments will determine your return.

Risk and return are strongly linked. If you are taking more risk with your money you should earn higher return.

If you take more risk and earn a higher return, then you will reach your goals more rapidly than if you had taken less risk. But you will only do that if you have chosen good quality investments and you can accept and emotionally cope with market going up and down (volatility).

Your risk profile is what level of risk you are emotionally comfortable with taking.  As you approach retirement, its important to re-do your risk profile assessment.

The prevailing thought sometime ago was that once you enter retirement you should re-invest your retirement nest egg into the conservative asset classes of cash and fixed interest. However, latterly the approach has been to have a reasonably high proportion of your investment assets in the growth asset classes of property and equities. This helps to guard against the ravages of inflation in a way that investing purely in cash and fixed interest won’t.

How much is reasonably high? That will depend upon your risk profile or your attitude to risk.

Whilst it is tempting to think that you will just put your money in the bank where it will be safe that too experiences volatility which in turn can affect your income. Currently bank interest rates are less than half what they were a few years ago. If all your money is invested in the bank, it can be extremely difficult to have your income reduce by half, especially if you rely on that income to pay the bills.

It is generally accepted that it’s important to spread your assets across the asset classes rather than investing all your money in just one class. By diversifying your assets you maximise growth potential (i.e. returns) and minimize the effects of volatility (the ups and downs of the market over time).

So diversifying your assets is critical to long-term success. Just how you do that and the way in which you undertake it must be consistent with your goals so that you develop a robust plan and a strong financial base for the long term in line with your risk profile.

As time goes by, your portfolio should be monitored to ensure it is adjusted so that it reflects your current needs and goals. Financial planning is a dynamic process and it is not something you should put in place and leave unattended

Where will I live?

Where you decide to put down roots will not only loom large in your vision for retirement, it will also play an integral part in your personal financial plan. Why, because it affects the amount of capital that you have tied up in your home and which is therefore not available for other purposes.

This decision is very closely linked as much to emotional needs as it is to financial needs.

Do you want to sell your existing home and buy something smaller, more manageable, cheaper or closer to the family?

Some want to use their home to release capital to help fund their retirement lifestyle.

You might want to sell your existing home and move to a smaller town where property is cheaper.

Do you want to move into a retirement community?

These are just some of the options to consider and check thoroughly so that you have a realistic idea of the implications both financially and emotionally.

And finally....

This hub is copyright Travelespresso.  Do not copy.

Writers love feedback so please leave a comment, rate the hub and/or pass it onto friends.  Thank you.


Comments

    0 of 8192 characters used
    Post Comment

    • travelespresso profile imageAUTHOR

      travelespresso 

      7 years ago from Somewhere in this exciting world.

      Its fantastic that you are saving now Simone. If you start early, don't withdraw any of it, keep saving and inflation adjust the contributions then retirement saving becomes easy.

      Thanks so much for stopping by and commenting.

    • Simone Smith profile image

      Simone Haruko Smith 

      7 years ago from San Francisco

      Thanks for writing the Hub, travelespresso! I totally agree with your advice - I am already saving for my retirement at age 23!

    • prasetio30 profile image

      prasetio30 

      7 years ago from malang-indonesia

      Good information from you. Very inspiring hub and very useful for us. Rating up. Thanks for writing this. Love and peace!

      Prasetio:)

    • travelespresso profile imageAUTHOR

      travelespresso 

      7 years ago from Somewhere in this exciting world.

      Retirement is a huge change in peoples lives and you have so correctly identified that prior planning will ease the stress. We might want to retire but have insufficient resources - or resources in the wrong area - and are unable to afford the lifestyle we want. Its a choice.

      Thank you so much for your considered comment.

    • Stephanie Henkel profile image

      Stephanie Henkel 

      7 years ago from USA

      This is excellent advice, Travelespresso. Retirement is a huge change in our lives. Planning ahead makes decision making easier when the time comes, and reduces stress. Tracking expenses and making pre and post retirement budgets also gives people a picture of what it would be like if they retire early or wait until 65 or later. Then they can decide if it's more important to have more years of retirement or more money in fewer retirement years... Quite a decision!

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)