As you picture the perfect life in your retirement what do you see? Whatever you envision, be it finally being the farmer you were meant to be or just relaxing watching the expanse of the property you have acquired, you have to ask yourself how much will it cost for me to make that a reality?
How much is enough?
How long does let’s say, Shs200m last in retirement?
When it comes to retirement savings, asking someone how much savings they would need is like inquiring how long they think it will take to travel to a destination without considering all of the variables; where are they?
What mode of transport are they using and so forth? This is the same principle in posing the question how long will Shs200m last in retirement. There are many variables to consider.
Your current income is a useful starting point in calculation your retirement savings needs.
The truth is that the more you make today, the more savings you will need in retirement stacked against your standard of living.
But it won’t matter, because you will already be saving more in anticipation for the future.
What kind of pay out are you expecting? Will you receive any defined benefit pension benefits during retirement?
Will you opt for a lump sum or monthly payments? Getting a good estimate is invaluable as you plan your retirement and determine your savings need.
When to retire
The sooner you retire, the longer you can expect to live during retirement. This means that you will need to have more saved.
If you wait longer for retirement, not only will you be retired for a shorter amount of time, but you’ll also have a steady income for longer, meaning you can save more.
Years in retirement
This is nicer, less intrusive way of asking the tough question — what do you think your life expectancy will be?
Based on your health, family history and lifestyle you could spend 30 or more years in retirement.
Figuring out how many years you will spend in retirement helps you figure out how much of your savings you will need to withdraw each year.
If you invest well, you can expect a reasonably higher rate of return on your investments.
This means you will have to save less compared to someone who insists on keeping all investments in their savings account.
This is where having a pension outweighs having just a normal savings plan. A pension can be invested on your behalf and so your money will be making money.
The younger you are and the more you have saved, the less you’ll need to save in the future in order to achieve the same retirement standard of living as someone older or with less money saved up.
Remember the early bird gets the worm.
After considering all of these variables, only then can you determine how long Shs200m will last in retirement.
How to prepare
Most employers offer a good plan for employees to save for retirement. But when you work for yourself, you have to take responsibility for your own retirement plans.
However, a recent Manta survey of 1,960 small business owners revealed that one-third don’t have a retirement plan. “That’s a lot of entrepreneurs whose futures are filled with a great deal of uncertainty right now,” said John Swanciger, CEO of Manta.
It can be easy for small business owners to get distracted by the day-to-day financial decisions involved in running a company.
But losing sight of your retirement goals can be costly, said Alissa Todd, a financial advisor at The Wealth Consulting Group.
“While it is important to focus on your business’s success and growth strategy, it is equally important to create a strategy for your own personal financial success.”
Set concrete goals
When you plan for retirement, start by deciding where you want to end up – living a modest life in a little apartment, traveling around the world or somewhere in between. Knowing the result you want to achieve will allow you to start planning.
“Financial goals, like any goals, work best when they are specific, measurable and time-sensitive,” said Todd.
“Set intentional and realistic retirement and financial goals so that you can work towards the retirement lifestyle that you envision.”
Develop a succession plan
“In the corporate world, there’s almost always another employee waiting in the wings to take the place of a co-worker who has retired,” said Swanciger.
“That’s not usually the case for small business owners, who typically have a difficult time relinquishing control to just anyone.”
According to the Manta survey, 34 per cent of small business owners don’t have a succession plan in place. But planning for how to leave your company, and knowing who will take over after you leave, is part of planning for both your future and that of your business.
Begin by speaking with a lawyer to figure out the legal requirements for creating a succession plan.
Build your team
The ins and outs of planning for retirement take specialised knowledge, from selecting the best savings option to understanding the tax implications of selling a business. Working with the right professionals can help you plan effectively for every step.
“Surround yourself with a team of professionals in all aspects of your life, especially when it comes to your financial life,” said Todd.
If your ultimate goal is to fund your retirement from the sale of your business, you need to plan early to ensure that it’s ready for potential buyers.
Though selling a business is one way to fund retirement, many experts warn about the dangers of relying solely on money from a sale to bankroll your golden years.
“What if your company suffers from a sudden downturn in business, severe property damage or any number of possibilities?” Swanciger asked. “In these cases, it’s unlikely that you could find a buyer – putting your retirement savings and livelihood in jeopardy.”
Instead, diversify your retirement planning by opening one or more retirement savings accounts as early as possible.
This article is adopted from Business Daily