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Avert Retirement Panic: Plan

  01/08/10 11:47, by Len, Categories: Personal Financial Management, Investment Management, Retirement Planning

Source: Article by Allan Heynen, director at BDO Spencer Steward Financial Services

When you eventually walk out of your office or business at the age of 60 or 65, will you be financially ready for what lies ahead? Whether you're just starting your working career or coming to the end of it, the best way to avert retirement finance panic is to plan - no matter the state of the economy or markets.

You or your finances – which will outlast or outlive which? With extremely negative market sentiment currently pervading all aspects of our lives, increasing oil prices and interest rate hikes on the horizon, South Africans of all ages are finding themselves walking a financial tightrope each month. Less disposable income means cutbacks; reducing spending on non-essentials. While non-essentials may be holidays and luxury cars for some, and hair dye and chocolates for others, saving towards your retirement – no matter how young you are or the volatility of the market – is an essential.

The current state of retirement saving in South Africa can be described as somewhat ironic. While most people can tell you they should be putting about 15% of their monthly income away for their retirement, few actually do. Although misconceptions about retirement have much to do with this, a lack of financial planning and subsequent goals often ensure that most of us literally live from hand to mouth. What we fail to realise, however, is that current retirement funding trends have made us individually responsible for funding our later years. Whereas this onus used to lie on the shoulders of employers, the burden is increasingly being shifted onto employees. This means that you have to get actively involved in creating and contributing to your own retirement plan. The success of this will thus be intricately linked to an awareness of your finances – and your ability to plan accordingly.

Financial planning and budgeting enables many things. Not only will you finally realise where your money is disappearing, you will also be able to identify subsequent opportunities to save. More importantly though, it will empower you with the information you need to set financial goals. What most of us don't appreciate is that setting a goal to clear our debts for example is a means of saving. This will contribute directly towards your goal of a financially secure retirement. It will also focus your spending accordingly – and make you re-evaluate much of this. The critical thing to realise about your financial goals is that they function independently of the volatile markets. Your goal to save 15% of your salary every month towards retirement thus remains an ongoing one irrespective of the oil price or interest rate.

While you will probably find you create a number of simultaneously functioning goals – such as paying off your house and saving for retirement, your goals will lead you to a variety of options. Saving for retirement for example should involve your exploring the discretionary vehicles available to you: everything from retirement annuities to unit trusts and even investing in the stock market, depending on your age. Remember that the younger you are, the better your chances of ensuring a comfortable retirement by virtue of your greater – and more risky – investment options.

Although visiting a financial adviser isn't a pre-requisite in drawing up a plan, it does help. Not only will they be able to help you identify areas where you could be saving money, but will also assist you in adopting your plan as your circumstances change; diversifying your assets for example and revisiting the “risk” element as you grow older.

When it comes to planning for your retirement then, whether you want to live out your days walking on a beautiful beach or sipping tea on the patio with your budgie, start planning for it today. Planning will enable you to save, and saving will enable you to invest. Who knows? With the right combination of committed investment and diversified risk, you might just end up sipping tea on the patio with the budgie – overlooking a beautiful beach.

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