Picture yourself at the end of your working years with family in tow and you are able to keep the lifestyle you had enjoyed during that period. You are well equipped financially to handle all your expenses, treat yourself to some fine dining at least once or twice per month, and take Mrs. Retiree on that long transatlantic cruise you promised when you were still on the job thinking that retirement will not come around any time soon.
Now, imagine yourself in retirement with all your family commitments, bill payments, university fees for your teenaged children and home repair expenses. But in this scenario you are struggling financially and not able to enjoy the lifestyle you maintained in the early days. To make matters worse, you are not in the pink of health and confronted by mounting medical expenses. What would you do? How will you manage your affairs?
Which of these two scenarios do you find more appealing? The first of course, after all, it paints a lovely picture with the benefits, comfort and peace of mind we all desire during retirement. How do you achieve it then? It is simply a case of proper planning and disciplined execution. Proper planning allows you to be better prepared for most if not all the issues that will impact your income and expenses, when you are no longer earning the same income. Taking a look at your sources of income for retirement well in advance will prompt you to identify some other opportunities for earning income. Perhaps you are an excellent baker or handy at carpentry. You can prepare yourself to rely on these skills for additional income when you are no longer at the office. As it usually turns out, your company pension will not be sufficient to cater for all your needs if you live for 25 or 30 years after retirement.
On the expense side, you will need to consider a few factors since expenses may vary according to your social circumstances, social lifestyle, longevity and healthcare issues. Your expenses at retirement will also be impacted by other economic factors such as inflation. Planning will help you to minimize the negative effects of inflation on your ability to purchase goods and services when their prices increase over time. If you believe that the current cost of sending your children to college is too high, just imagine how much you will need to spend when they are ready to attend in the next 10 years.
So far we’ve focused mainly on the financial preparedness aspect of retirement planning. But over the years researchers have discovered that there are several other factors contributing to ‘retirement confidence’. According to a U.S. report by Kim, Kwon and Anderson based on a 2004 Retirement Confidence Survey, the retirement confidence of Americans included their views and attitudes regarding retirement, their preparations for retirement, their confidence with regard to various aspects of retirement, and related issues.
The results suggest that those who calculated their retirement fund needs had more savings, higher levels of confidence in government programs for retirement, funding and medical insurance, higher household income, and better health. In addition, persons who received financial education and advice had higher levels of retirement confidence than others. For persons nearer to retirement it was felt that retirement confidence was affected by other variables such as talking with family members and reading articles; knowledge of retirement issues; home equity planning and location planning. It is clear, that you will need to prepare yourself in several ways so that you are confident in your ability to live a comfortable life in retirement. Don’t ignore your psychological preparedness.
Keep in mind that you will need to start planning as early as possible to ensure that you are able to deal with the life events during retirement. The retirement years can be very challenging if you are old and alone, old and ill, old and disabled or old and in need of assisted living care which can be staggeringly expensive. Failing to plan will be tantamount to planning to fail. Don’t set yourself up for disappointment! Find a good financial advisor to assist you with your plan. Talk to him/her about your retirement aspirations to design and write a plan that will work in your best interest.
Fortune magazine published a study showing people with written plans end up with an average five times the amount of money at retirement as those with no written plans. Similarly, Harvard Business School published a study on goal setting and found that 83% of persons surveyed don’t have clearly defined goals; 14% have goals but they aren’t written down; only 3% have goals committed in writing. After a 30 year follow up, the conclusion was the 3% of persons with written goals earned an astounding 10 times the amount of the 83% group that failed to clearly define their goals.
The conclusion is quite clear, you must plan ahead of your retirement so that you can enjoy it in comfort. Lack of proper planning will increase the risk of outliving your money at retirement and will force you to find work to maintain a comfortable lifestyle or live in poverty. Not giving your retirement plan sufficient time to work will expose you to market volatility. Don’t be caught playing catch up because you may not be able to recover. And remember, putting your finances in order is important for your family. Your investment of time, affection and security for your loved ones during your working years will most likely repay you with rich dividends in your golden years.