The consequences of not planning for your retirment can be very dire; especially for retirees in
the UK who will have to survive on the £144 per week basic state pension. With life expectancy rising for UK citizens, it is expected that a typical Briton will spend about 45 years of their lives working and have 30 years of retirement at their disposal.
How comfortable the estimated 30 years of retirement will be, depends on how well you planned your incomes, savings and investments from your 20s after you completed your college education and joined the workforce.
In Your 20s and 30s
At this prime age of your life, the financial decisions you make will be pivotal to your life either changing it for the better or crashing it. The important things to prioritize include focus on clearing your debts, opening an individual savings account (ISA) and finally exercising high discipline to ensure you regularly deposit cash into the savings account without withdrawing it.
To illustrate the need to start saving at a young age, an analyst from Stern Options explains that “If you start saving £150 per month when you are at the age of 25, you could end up with a fund worth £395,000 at your retirement age (assuming annual growth of 7 per cent). But if you leave it another five years and start saving at the age of 30 years, your fund would only be worth £270,000. That is a difference of more than one-third, and illustrates the power of compound interest over time.’
In your 40s
It is commonly said that “Life begins at 40” and that when you are in your 40s you are in the phase of your life that is referred to as “the golden decade.” This is not by chance but rather by design. When you are in your 40s you will be at the peak of your career and your monthly income from your salary will have risen to all-time highs. Your mortgage payment will be shrinking down towards the end and your high monthly expenses of raising your small children will have started to decrease. On the flip side of things, you will be experiencing the “midlife crisis” as you think about the fast approaching retirement and the many things you would love to have achieved before you are all old and weak to experience life to the fullest.
While in your 40s, it is advisable that you still maintain a good portion of your portfolio in equities. You still have enough adrenalin to match the random fluctuations in the stock markets; hence it is not yet time to start playing safe on your investments. You still have room for some risk-taking. In terms of savings, at this age you need to start moving more of your ISA holdings to pensions in order to benefit from the higher rate of tax relief. In the UK, everyone can save 100 per cent of their income or £245,000 (whichever is lower) each year.
In your 50s
At this age in your life you will probably have finished paying your mortgage and your children are all grown-ups now and moving out of home. With the state pension age at 65 for men and 63 for women, you will be approaching your last decade before retirement and hence it will be the time when you need to be very smart with your investment strategies. More diversification of your investment from equities to non-equity investment vehicles such as bonds, cash deposits and other fixed income securities such as Government gilt are a safe bet as you near your retirement. At this age too, you will need to request for a state pension forecast just to get a clearer picture of how much money to expect from your pension fund when you retire.
In your 60s and 70s
As you approach your retirement age in less than 5 years, you need to start reallocating your
investment portfolio again in order to ensure that you are only exposed to investment volatility that you can handle comfortably. Most of your investments will therefore most likely be shifted into fixed deposit cash accounts and other fixed income securities. When you finally retire, you will be looking for regular sources of passive income and therefore investing in real estate and other investment vehicles which do not require your day to day monitoring will be prioritized. All your focus will now be on getting a regular income that is not prone to the random market volatility that is experienced in the capital and commodity markets.
Getting the above process of personal financial planning right calls for a deliberate decision to be disciplined and have a forward –looking perspective to life. Seeking the assistance of a financial planner can help you better plan and implement your retirement starting