Basseterre, St. Kitts - Workers today are living longer than their parents and grandparents did. Therefore, they will spend more time in the retirement phase of their lives as well. When the word “retirement” is mentioned, many persons immediately wish for a secure and comfortable retirement. For some, this may include taking a cruise, for others traveling regularly and for others spending more time with their grandchildren or in their gardens.
Planning
However, achieving security and comfort in retirement is more likely when one plans for the golden years. These plans should include having enough money to be able to cover or manage one’s expenses in those years when there is no salary. In fact, the quality of one’s retirement depends on the quality of one’s finances, that is:
1. How much one will receive from their pension plan;
2. How much one has saved;
3. How well one has invested;
4. How much one will receive in Social Security payments
Once you start thinking about retirement, and the sooner you begin to think about it the better, you should estimate how much money you would need in order to live securely and comfortably during this period. To achieve this goal, it is necessary to save and invest to ensure that you are able to achieve the estimated amount. This amount should be your minimum goal.
Your minimum goal would depend on what you would like to do, what you would like to have or to enjoy when you retire. In a nutshell, the life you would live or the lifestyle you wish to lead in retirement. You will have realized that the amount you need to have, to save, and invest would differ from person to person. The sum you need will be different to the amount your co-worker, your neighbour or your friend needs.
Some persons may be ready to retire with very little in terms of savings and investments, while others think they may not be ready until they have a great deal of money in the bank and/or invested in financial instruments. Even if you think that once you retire you will not need as much clothing as before and you would be cooking and eating home more frequently, the older you get, very often the less you would be able to do the things you used to. You may find that you require household help, or assistance in maintaining your garden. Costs of home help in the future are to be considered – and indeed included in your planning. Everyone needs to set a monetary retirement goal.
Setting Goals
In terms of the exact amount that is required, the “rule of thumb” is that retirees need approximately 80% of their pre-retired income in order to maintain their current lifestyle. The reasoning behind this rule is that you will have fewer expenses. This premise is based on the expectation that persons pay off all bills before going on retirement. For example, you will have paid off the mortgage on your home, which is the normally the largest monthly bill to be paid, you will no longer be saving for retirement and you will need fewer items of clothing.
The closer you get to retirement, the closer you need to look at your retirement income goal. It is important to review all of your retirement income sources. Once again, it is important to know how much your monthly pension would be, if you are a part of pension plan; how much your social security payment would be and when you will start receiving it. You need to look at income from savings and investments and review the risks.
Reviewing Investments
It is necessary to review your investments as well, as some persons use their investments to generate income during retirement. In our part of the world, many persons own shares of companies from which they receive dividends, one or more times per year, depending on the company. Each company pays different dividend amounts. Some persons own bonds and or treasury bills because they see these investments as a means of increasing their income. Investments in bonds pay interest at least twice per year and principal (the amount invested) on maturity, that is, at the end of the investment period. Investments in treasury bills return interest as well as the principal on maturity.
When one is nearing retirement it is not the time to take great saving and investment risks. It is the time to reduce such risks. In addition to reviewing your savings accounts and your fixed deposits, you need to pay attention to the dividend amount you receive on your investment in shares of a company, as well as how frequently/regularly you receive it. It is important as well to look at the interest you receive on your bonds and treasury bills. It is extremely important to review them all.
It is recommended that the older one gets, the less they should be in risky investments. It is therefore very often advised to hold fewer investments in shares of companies and to invest more in fixed-income instruments such as bonds and treasury bills. It is said that this constellation lowers the risk of losing the original sums or principal invested in shares, and the loss of income from dividends if a company decides not to pay dividends one year.
At the same time, investing in bonds and treasury bills, along with the benefits that regular interest payments provide to retirement income and the return of the original sum invested, also holds risks. There is the risk that the bond issuer defaults and stops making the interest payments and is unable to return the full amount of the principal. A balance must be found between investing in shares and in bonds and treasury bills. An investment advisor, your broker, will be available to advise you.
As all investments carry risks, it is important that all investments be seriously considered before any action is taken, for if one saves and invests wisely, the chances are that the retirement years may be truly golden.
