Plan ahead
Work out how much money you’ll need for a comfortable retirement. Only then can you project whether you’ll have enough to meet those needs at your present savings rate.
Start early
The earlier you implement your retirement planning strategy, the greater your chances are of growing a decent nest egg. At the outset, your aim should be to achieve capital growth. This requires fairly aggressive investing.
A pension fund is not enough
The biggest mistake our parents made was to assume that membership of their employer’s pension fund would guarantee a comfortable retirement. There are a variety of investment products out there – retirement annuities, endowments, and unit trusts. These should be included in your strategy to accumulate capital for your retirement.
Reduce your debt
Aim to be debt free. If you clear your debt several years before retirement, this money could be put to work to ensure an even more prosperous retirement.
Be vigilant
In order to be vigilant, you need to educate yourself. It is your responsibility to make sure your pension money is secure.
Be innovative
When you retire, a number of lump sums become available from various retirement plans. However, you don’t have to retire from a retirement annuity before your 70th birthday. You could well wait until your marginal tax rate has dropped.
Step-by-step planning
Start planning for your retirement the day you launch your career. The longer you procrastinate, the less your chances are of achieving a financially comfortable retirement.
In your 20s
Your lifestyle is probably fast and aggressive, and you have the potential to achieve a steady stream of an ever-increasing income. You can therefore afford to take investment risks. But discipline is required to build up a substantial investment portfolio. It should have a high equity exposure with a good balance between smaller company stocks, growth stocks, international equities, and perhaps a slight value stock exposure. Your cash exposure should be minimal.
In your 30s and 40s
Your lifestyle has probably become more expensive, with home loan payments making up a significant portion of your household expenses. In your 30s and 40s you are likely to be funding the education of your offspring. An equity suite of unit trusts or an endowment with a high degree of equity exposure should help you save for these predictable expenses.
In your 50s
The capacity for risk should reduce significantly with age, and that a balanced portfolio should consist of exposure to the equity market. A marked reduction in equity exposure will reduce real growth exceptionally over this period and requires careful thought taking into consideration your capacity for risk.
Mid-60s and beyond
By now you should have achieved complete financial independence with little risk of exhausting your capital base. You need to establish the real return prospects of cash and other fixed-income investments over the long term and manage your cash flow accordingly.
Your tax position is an important consideration – investigate investment vehicles more tax friendly than your own savings account. Cash or other fixed bearing investments could be housed in a living annuity, where the interest earned is exempt from tax, or in an endowment policy where the interest will attract tax at 30% within the policy as opposed to a possibly higher rate in your hands.