Successful Retirement Planning
by
Most people look forward to a retirement where they can devote more time to the pastimes they enjoy. However, when it comes to retirement planning and pensions, a veil of confusion tends to cloud their perspective.
The essential fact about retirement planning is that it is simply making provisions out of your current income and investing for the time when you come to retire. Though most States provide some retirement income, at the end of the day it is up to the individual to make provision and, in this sense, providing for retirement is no different than setting aside money for any other future purpose such as a new car, a house deposit or holiday.
The significant difference between retirement planning and other investment objectives is one of magnitude. In retirement, we expect a continuation of, at the very least, our current standard of living. Given that we spend an increasing proportion of our lives in retirement and State benefits are reducing, the need for early, effective retirement planning has never been greater.
However, modern society is told by TV adverts, children's demands, etc... that immediate gratification is the only way. So how do you marry up these two key ideals?
Basically, the answer is NOT TO DELAY!
The cost of delaying the savings process can have a dramatic effect on both the amount you need to invest and the impact this will make on your lifestyle. Friends Provident International has illustrated this perfectly in their sales literature for their offshore pension plan.
Friends Provident calculated the increase in monthly contributions for a fictional individual who would like to retire at the age of 55 with a retirement fund of US $1 million, assuming he kept delaying contributions by a further 5 years.
The tables below show how much extra the individual would need to contribute each month just to reach the same target.
Example A(Assumed average growth rate of 5%) |
|||
Age |
Minimum monthly premium required (2) |
Duration of policy |
Total premium required to achieve US$1million at age 55 |
30 |
$1,845 |
25 years |
$553,500 |
35 |
$2,659 |
20 years |
$638,160 |
40 |
$4,065 |
15 years |
$731,700 |
45 |
$6,935 |
10 years |
$832,200 |
Example B(Assumed average growth rate of 9%) |
|||
Age |
Minimum monthly premium required (2) |
Duration of policy |
Total premium required to achieve US $1million at age 55 |
30 |
$1,053 |
25 years |
$315,900 |
35 |
$1,729 |
20 years |
$414,960 |
40 |
$2,983 |
15 years |
$536,940 |
45 |
$5,689 |
10 years |
$682,680 |
Now, US $1 million sounds like a lot of money, but when you consider current annuity rates for a 55-year-old are just over 5%, this only amounts to an annual income of US $51,000. This would be lower still if you want to inflation-proof your income!
As such, the questions we all need to ask are:
"Is this going to be sufficient to maintain my lifestyle in retirement?"
"Is this enough to do all the extra things in retirement, like travelling, that I wish to do?"
"What about inflation, what about annuity rates falling further?"
All these points mean that two things are vital, one that you start saving for your retirement as soon as possible, and secondly that you review these plans regularly.
What you can afford to contribute to ensure your future is dependent on many factors, including your current, ongoing financial commitments. Candour Consultancy recommends you contribute 15% of your income, throughout your career, as a good benchmark for achieving a financially independent retirement.
After all, the true cost of delay is not achieving your goals and dreams, not the cost of saving money now!
About the author
Darren Ashley is Managing Partner of Candour Consultancy. Candour Consultancy is one of the leading providers of independent and impartial expatriate financial services. Candour Consultancy can be reached at info@candourconsultancy.com
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