LOUISE FAIRESAVE: Retirement goals
Preparing for retirement involves settling what are the goals and objectives of retirement. How will your lifestyle in retirement compare to your current lifestyle? What is your life expectancy? How is your health, and what are the likely health problems in the future?
The ultimate goal of your retirement plan is to outlive your money and where at all possible to leave an adequate legacy. That is a broad goal for everyone. Here are seven specific objectives to be considered:
• Reducing/eliminating debt so that by retirement, the servicing of debt is not a call on your cash flow.
• Maintaining health insurance for as long as possible into retirement. If there is one unplanned expense that can make a pauper out of the richest retiree, it is inordinate and unplanned health care cost. Sustaining a physically and socially active lifestyle helps to reduce health cost risks too.
• Minimising recurring costs during retirement consistent with your planned retirement lifestyle.
• Generating adequate cash flow (income) to support your aspired retirement lifestyle. Any excess cash flow can be invested toward rainy days or towards enhancing your legacy.
• Adequately balancing the saving and investing (liquidity) in your established retirement fund. Cash must be available for spending as needed. The greatest risk/fear is about running out of retirement funds.
• Making reasonable provision for inflation and contingencies which may relate to health care expenses or retirement housing/care.
• Examining and refining your legacy through comprehensive estate planning, including preparing a living will in the event of incapacity to handle one’s own affairs.
It is never too late to start planning for retirement. The key is to start. For sure, the earlier you start the better for you. The first step is to evaluate exactly where you are at the present time.
One way of assessing your retirement cash needs is to examine in detail all your income and expenditures for a full year or two during the planning period before retirement. Prepare a detailed cash flow by month of the source of all your income and the way cash is expended, monitoring every single cent that is earned or spent each day.
This is a tedious exercise, yet exceedingly potent for retirement planning. With this spreadsheet in hand, review each income source and each expenditure, considering how each may change or be purposefully changed by you during retirement. Without this detailed analysis, most retirees will underestimate expenses and so overrate how far their retirement income will meet expenses.
There are certain expenses that should come to an end by retirement (like the residential mortgage, other loan payments, and the support of adult children or their education costs). Then, there are some expenses that can be curtailed (like extensive annual vacations, regular costly socialising and entertainment, and the costs of running your home and vehicle). This is when decisions are made about cutbacks as well as doing without certain expenditures altogether. Retirees, more often than not, tend to examine carefully the living landscape for freeness and reduced costs for everything in their expenses budget.
Once this review is done early enough, you will have some time to uncover some ideas about what you need to work on most to get closer to your retirement goal.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.