Don’t wait for pension money… begin early retirement planning

In a very simple term, retirement is the point where a person stops employment completely.

Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions no longer allows the person to work anymore (by illness or accident) or as a result of legislation concerning their position.

Nowadays, most developed countries have systems to provide pensions on retirement in old age, which may be sponsored by employers and/ or the state. While conventional wisdom has it that one can retire and enjoy more from his investments year after year, this would not have worked very often in the past.

This is because when one makes periodic inflation-adjusted withdrawals from his retirement savings, he makes meaningless many assumptions that are based on long term average investment returns.

According to Julie Ewald, a personal finance expert, “In an ideal world, we would start contributing to our retirement savings accounts the moment we receive our first paycheck from our first job. With the rumour mill of declining social security benefits, you can no longer rely on this form of funding in retirement. In this time of fiscal uncertainty, there are many financial decisions that can make or break you during your formative years.” She believes that there are worst financial decisions you can make in retirement which must be avoided. Some of them include: assuming you will retire at a specific age.

Ewald added: “There are many factors that can influence the age at which you retire, some of which are not in your control. An unfortunate layoff, forced early retirement or unseen health issues can cause you to retire earlier than expected. If you are counting on the last few years of savings to set everything in order, you may find yourself with a lack of income in a tough job market. This is why it is absolutely imperative that you begin your retirement planning as soon as you can.” She went further to identifying another worst financial decision during retirement to include people’s reliance on the advice of friends and family instead of a professional.

According to her, “Everyone has a friend or family member who is a self-proclaimed financial genius. They may even provide great tips for saving, but it is still best to sit down with a professional who can directly assess your finances. Your friend may have done a great job with his or her own retirement, but this doesn’t mean he or she understands your specific needs. In a worst-case scenario, he or she knows even less than you do. “You don’t need to be wealthy to sit down with a financial planner or retirement specialist. The earlier you begin creating a retirement plan, the easier it will be to manage in the future. The value of a professional who can integrate all of your income and savings into a cohesive plan cannot be understated,” Ewald added.

Again, some people fail to update their retirement plans forgetting that reaching retirement doesn’t mean that it is time to abandon risk. “Many retirees make the mistake of dumping higher risk equities from their portfolio in favour of low-risk bonds. The problem is that bonds don’t provide the long-term potential required to sustain a retirement income for twenty-plus years. Don’t be afraid to retain an asset allocation that is heavy on equities,” the expert advised.

According to Stephen Simpson, an investment analyst with Kratisto Investing, saving for retirement is not optional. “When it comes to personal finance, saving, and investing, there are a lot of comments like ‘it depends’ or ‘your situation may be different.’