Retirement planning isn’t about looking at your budget, deciding you can afford an ‘x’ amount per month and praying for dear life that the markets work in your favour. If that’s your plan, you need more than prayer; you need a miracle.
Very often there is sadly no organised strategy towards an individual’s retirement. Then come the month of retirement and the individual collectively takes into consideration proceeds from his retirement annuity, pension or provident fund and any other savings and shops around for the best ‘rate.’
Common mistakes are settling for the highest return and not taking into consideration the longevity of the income. Did you know when an individual passes the age of 65; their life expectancy is around the age of 86. Taking a reduced income upfront can ensure that the income period can be extended.
Another oversight that’s not thought over is when one draws a maximum level income, there is no room for increase. If inflation increases annually, not to mention the price of medical aid, electricity and water and other goods and services shouldn’t your income increase too?
A silent killer in investment purchasing power and the longevity of income is inflation, therefore capital growth should certainly be a consideration for intelligent investing. On the other hand timing the markets by chancing too much risk or not understanding market volatility can also have detrimental consequences.
A professional financial planner should be able to assist you with a strategy that minimises both the above mentioned risks.
But my argument is that not managing your life and waiting until retirement is the worst slipup! Retirement age is the point whereby a solution should be implemented based on prior planning. And that is the leading blunder individuals make that truly costs them their quality of life at retirement.
Speak to your financial planner now instead of waiting for your actual retirement age. He or she should be able to provide you with a detailed idea of how much you can draw for income at retirement, exactly what your needs will be and how long it will last and all other affordability analysis.
