Earning your retirement is a special process. This is mainly because more often than not retirement income is not raised from working in our career job or service.
By the time we reach retirement, we usually are looking forward to putting down the tools of our trade and to lying in a comfortable hammock near the beach.
Whether you have planned it or not, when the time to retire comes, you typically would have already earned a substantial part of your retirement income.
To increase the likelihood of comfort in your retirement, it is better to have pre-planned your retirement income and lifestyle. Pre-planning for retirement financially, psychologically and socially has indispensable value to your peace of mind.
“Earning your retirement” is really a conundrum.
It is truer to say “setting up your retirement”, for that is more descriptive of the process.
Every day we earn a living in our day-to-day work/service or investing we are also earning our retirement . . . or not.
Internationally, governments have recognized how retarded we all are in recognizing this basic fact and force us all to make compulsory contributions to our retirement through national insurance schemes which have a retirement funding aspect.
Similarly, company pension plans are not required by law. Companies implement pension plans voluntarily in the interest of providing benefits to their employees. The idea is that the pension plan will enhance the likelihood of financial viability for employees during retirement.
Further, company pension plans limit the maximum amount you can get to 67 per cent of your income at the time of your retirement.
This means that from the day of retirement, unless you have made additional income arrangements, you will have to adjust your spending to this level.
True financial success is having financial success during your career and during the retirement years.
If you are scratching for a living at any time during your retirement, no matter how successful you were during your career, you could not be described as a financial success.
So it is usual for government to make provision for our retirement and it is possible that our employer will too. What about that which we do for ourselves?
It is useful to make a personal provision for your retirement earnings.
In addition, it is recommended that the typical thinking in ranking of retirement funding sources be reversed. Most of us count first on the National Insurance Scheme, then our employer’s plan and, finally, on personal sources.
In accepting our responsibility for the quality of our retirement, it is better to consider first what we are doing for ourselves, then treating any other source like icing on the cake we have bought for ourselves.
The burden of setting up our personal retirement fund is significantly less onerous if we start putting aside savings toward retirement as early as possible in our careers.
Even a small savings pool of funds consistently added to and held from early in our career actually serves well in funding a reasonable retirement.
This idea will be expanded in the next article.
• Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.