How prepared are you for retirement?

Written by 'Nimi Akinkugbe 

Email: nakinkugbe@punchng.com

Have you been planning and saving for retirement over the years or have you failed to address this most important stage of your life and suddenly find that retirement is looming? Will your nest egg be able to provide the kind of lifestyle that you desire for the rest of your life? Here are some issues to consider in planning for retirement.

How do you plan to spend your retirement? Consider these scenarios: Several hours of golf may be one of your goals; or it could be world travel, spending more time with your children and grandchildren, or pottering around your garden. At last, you can take your passion or hobby to a new level. You might want to give back to your community through volunteering or philanthropy. Would you like to go back to school just to learn about a subject you've always been interested in, or to share the immense knowledge and experience that you have garnered over the years by teaching?

The possibilities are endless; ideally, this should be the time of your life where you are open to new and exciting opportunities that will keep you productive, mentally stimulated and fulfilled. For far too many people, however, an uncertain future clouds these rosy pictures and they may never become a reality without adequate preparation.

The earlier you begin to save and invest, the more time the power of compounding has to work and your money has to grow. Those who start saving for retirement in their 20s have a much better chance of building a significant nest egg. Saving even a small amount on a regular basis can add up to a tidy sum over a long period of time. The younger you are and the more you have saved, the less you will need to amass in future.

How much do you have to start saving now to generate the kind of income that you will need to afford the lifestyle you desire? It is increasingly rare for a pension to be able to cover all your retirement needs. Your retirement income is likely to come from your pension as well as other savings and investments. As life spans increase, it is not unusual to spend well over 20 years in retirement; so, you need to be sure that your financial resources can last as long as you do.

Your current income is a good starting point for calculating your retirement savings needs. It is estimated that most people need between 60 per cent and 80 per cent of current income to maintain their current lifestyle after retirement. There are several online retirement calculators, useful tools to help you to estimate how much you need to save periodically from now until then.

Start to educate yourself. Financial security and knowledge are closely linked. It is important to have a broad understanding of the basic investment principles; how you save is just as important as how much you save. Educate yourself on the different savings options available and what might work for you. Seek investment advice from your Pension Fund Administrator or your financial advisor. Monitor your savings and investments over time and adjust as appropriate to keep your plans on track.

How much risk can you afford to take? Your investment portfolio should reflect your age, the amount of money you have and will need, and your risk tolerance. With the spectre of inflation always lurking, and the possibility of spending more than two decades in retirement, your investment earnings will have to keep pace in order for you to have any chance of maintaining your current standard of living.

One of the most important rules of investing is to diversify, and it is even more important when it comes to retirement planning as the type of investments you make play an important role in how much you would have saved at retirement. You don't want all your retirement funds invested in high-risk investments, in spite of the higher yields those funds may generate.

Spread your assets between stocks, bonds and some cash savings. The amount in each category depends on how long you have until retirement. If you are young with retirement still decades away, you can afford to take on more risk. But as you move closer to retirement, say within ten years, you will have far less time for the market to correct itself or for you to recover from poor investment choices. Your investment choices might thus become more conservative and geared towards earning an income. Remember, however, that you must balance risk and return in order to achieve your goals.

Can you actually afford to retire? It is possible that even after making all the estimates and increasing your savings as much as you can, you clearly won't have enough in retirement; you may need to revise your retirement goals downwards, or may have to go back to work. Don't view this as a failing in any way; more and more "retirees" are continuing to work at least part-time to maintain some independence. This not only keeps them active, but also creates more money and savings.

The endless opportunities in retirement can only be attained if you have saved and invested wisely and remained healthy. Don't ignore the prospect of declining health as you age and include a financial cushion that allows for unexpected events and expenses. Without adequate insurance, one major illness can decimate even the best retirement plan and several years of saving and investing. No matter how healthy you are, put health insurance in place.

After several years of hard work, raising a family and hopefully, building your nest egg, retirement should be one of life's most rewarding stages. The responsibility for building your nest egg and ensuring that it supports you for the rest of your life lies with you.

Make saving for your retirement a priority and start now, whatever your age.