Financial Planning for Retirement

Financial planning is a discipline

Financial planning for retirement is a must among all individuals – of all age groups. It is a known fact that the monetary compensation distributed by Social Security is not enough to survive financially in today’s economy, and that the pension plans that most invest in for lifetime benefits are continuously being viewed as scarce. According to research, the average adult does not know or understand how much needs to be saved for retirement, and, as a result, save too little. In addition to this, it has been established that retirement planning today involves more than just saving enough money. As a result of the extended life expectancies of individuals, financial planning for retirement has resulted in people needed to save money for an extended stage associated with their life. The average retirement now lasts anywhere from 20 to 35 years. In this guide, you will be introduced to financial planning for retirement that involves the use of stages.

Initiating Retirement Planning

Financial planning for your retirement should start as early in your life, as possible. The main reason for this is that, you will have a huge advantage that you may never encounter again, and that is time. By simply investing a dollar at an early period in your life and combining that investment with the sheer power associated with compounding, you will find that it is able to grow much larger than the dollar that you invest at a later period within your life. When you start saving for retirement, it is important to understand that time has the potential to work for you, or it has the potential to work against you. This is why it is recommended that you initiate retirement planning as early in life as possible.  When you start financial planning for retirement early in life, you will find that there are numerous investment opportunities available to you that will help you save as much as possible, over the course of your lifetime.

Opportunities for Investment

Once you have elected to start saving early for your retirement, you are ready to move on to the next stage in the process, which is seeking out opportunities for investment. One of the most common opportunities for retirement investment is a contribution plan sponsored by an employer. This allows you to save by deducting a certain amount of money out of your paycheck. Best of all, this money is taken out on a pre-tax basis. It is advised that you start with a savings of at least 10% in these plans. If you are granted a raise, you should consider having at least half of the raise deducted into the retirement plan offered by your employer, as this will lead to more long-term savings for your retirement. Additionally, if you find that your employer offers a matching contribution plan, you should ensure that you contribute enough of your earnings so that you are able to maximize the amount that your employer is willing to match.

If you elect to go outside the investment opportunities offered by your employer, you will find that you have very few options. If you are searching for an investment option that is tax-deductible. You may place several thousand rands into this type of account annually. In most instances, the amount that you may place into the account may be doubled if you are married. If you would like to invest after-tax money into a retirement account, you could compare some options. The advantage to this type of investment is that you may successfully avoid the issue of taxation. If you wish to invest in an account where you have no restrictions on the amount of money that you place within the account, you may elect to opt for stocks, annuities, and various types of mutual funds.

If you are considered to be self-employed, other options are available where one as an individual has different plans.  The self-employed and those that desire to have tax-deferred investment options may choose from a Simplified Employee Pension, a Keogh savings plan, and a Savings Incentive Match Plan for Employees. There are many details pertaining to these plans and other options at the website of the IRS, www.irs.gov. You will need to carefully consider your individual circumstances, your own needs, and the long-term goals that you have that pertain to your retirement in order to elect the best financial planning option for your retirement. These are some tips for American investment plans, but South African options are also available the SA Treasury Department.

Financial Emergencies

As you age and progress through life, you are sure to encounter at least a couple of financial emergencies. By the time you are in your 30s and your 40s, it is quite likely that you have gone a long way into your career and your income is at its highest. Unfortunately, it is during these years that you are sure to discover a wide range of various expenses and financial emergencies that have the potential to detrimentally impact your financial planning goals for your retirement. Examples of these issues include raising the kids that you have had, increasing expenses due to fluctuations within the economy, and perhaps, even complications with your health that impact your ability to work. The goal, at this stage, is to avoid giving up what you have saved and continue to put aside for retirement in order to deal with the challenges that you are facing. Instead, you should ensure that you make the necessary plans to cope with these financial emergencies, such as:

  • Disability Insurance
  • Health Insurance
  • Life Insurance
  • 6 Month Emergency Cash Fund
  • Savings Account for Essentials During an Emergency
  • Home Insurance
  • Vehicle Insurance

The 50s and 60s

Now that you have passed all of the other stages outlined within this guide and are now in your 50s or 60s, it is time to increase the amount of money that you are placing into your retirement plan. If you have invested 10% throughout your life, for example, you should – at least – double this amount to 20%. If you are able to triple it, even better! For most in this age group, this is easy to do. In most instances, your vehicles and your home is paid off, your children are grown and are supporting themselves, and you are earning the most that you ever have in your profession. It is in your 50s and your 60s that the time that you have when it comes to financial planning for retirement is actually starting to work against you, not for you – so, you have to be certain that you are maximizing every single dollar and every single opportunity for investing into your retirement.

Retirement Planning

Throughout this guide, you have been introduced to several different stages that will assist in financial planning for retirement. The final stage is retirement planning – that is, what do you want to do during retirement? How do you want to live? Do you want to travel, or relax at home in your final years? Would you like pursuing a new hobby? How about going back to school? The goal of this stage is to determine how much your retirement is going to cost and placing real prices on the dreams that you have associated with retirement. You must calculate the financial resources that you will require during retirement and you will need to be very realistic. You should also be considering how to utilize your retirement assets, at this stage, too. If you find that your calculations exceed that which will allow you to enjoy the retirement that you have always dreamed of, you should engage in the following steps:

  • First, you should make every attempt to reduce the amount of expenses that you have. The amount that you save as a result of taking this step should be placed in savings or within your investments.
  • Next, you should determine how to increase your income. You may sell off items that you have acquired through the years, sell extra vehicles and/or homes, pick up an additional job, or become self-employed – in addition to your primary job.
  • If you have been investing into a retirement plan, you should maximize the contributions that you make into that plan.
  • You may want to consider postponing when you retire, or simply retiring in a part-time fashion.

Retirement

Once you have reached retirement, you have to continue financial planning. For most, it has been determined that having a financial planner is the best option for maximizing retirement savings and ensuring that enough is available for the final stage of life. You must learn how much to withdraw from your retirement account each year, and from which accounts to withdraw from. You must be highly conservative and know and understand the steps that are required to keep your money making money and to avoid spending too much during the last years of your life. In order to live comfortably and enjoy all of your hard work and dedication throughout the course of your lifetime, a financial planning expert is essential. By knowing what to do and how to do it, you can rest assured that you will experience a high level of financial security during your retirement years.

About the Author

JohanP
Johan Potgieter Independent Financial Advisor / Onafhanklike Finansiële Adviseur B.Sc Agric, MDP (UFS), M.Sc Agric (Stellenbosch) Ultrafin Finansiële Oplossings (Edms) Bpk / Financial Solutions (Pty) Ltd FSP 35757 Cell: 079 306 7203 | Fax: 086 545 6715 | Tel: (051) 436-5031/34 | Skype: johan.potgieter1512

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