We all want an easy and comfortable life in our sunset days. For most people, the idea of being able to comfortably afford the basic needs and a few other luxuries after you have retired is very desirable.
But the truth is, a stable retirement doesn’t happen automatically. It takes clear and concise retirement planning that should start as early as possible - ideally as soon as you earn your first paycheck.
Retirement planning refers to the game plan and strategies you create to help you manage your finances when you are no longer working.
The benefits of planning for retirement early are immeasurable. At the start, it can help you to better manage your finances, grow your investments and realise great returns on them. The end result will be a more financially secure retirement with peace of mind and maybe a few well-deserved holidays abroad - if you so desire.
And that is not all. Here are some of the main reasons why retirement planning is crucial.
Inflation is driving the cost of living to new heights; today's monthly budget will not be enough to cover your weekly budget in 25 or 30 years when you retire. Planning for retirement will help you define your goals and help you answer questions like how much you’ll need in retirement to maintain a comfortable lifestyle. You will then calculate future expenses while factoring in inflation.
Planning for retirement will also help you withstand economic uncertainties that affect your spending power. Economic uncertainties can affect your saving rates, lower the value of your assets and reduce cash flow.
Retirement planning will help you mitigate this as you will design an investment portfolio that can beat market uncertainties. This will include diversifying investments and seeking financial assistance from experts. The investments should be long-term and relatively low-risk that can withstand recessions, like real estate and government bonds.
While most workers prefer to work until they hit the mandatory retirement age of 60, sometimes, these plans can be cut short. Some events that lead to forced retirement are:
Retirement planning will help you prepare for the effects of being forced out of the workforce early. You can develop plans that will help you generate income and maintain your lifestyle when you voluntarily retire.
Retirement planning will help you get comfortable with saving and making investments that will increase your net worth and wealth. Financially planning for retirement will equip you with complex financial knowledge and concepts you'd otherwise not know.
You can carry over that knowledge to other areas of life. For example, you can duplicate your successful retirement investment strategies in your other investing goals, such as buying a home. It will help you build wealth and retire rich.
Planning for retirement will help prepare your estate to align with your life legacy. You will be able to pass on your wealth, giving your dependents a financial head start. You can preserve your wealth and leave it to your dependents, who you trust will continue your legacy. Investing in real estate and getting life insurance can leave your dependents financially set after you are gone.
After retiring, the best thing you can do for your family is not burden them financially. Planning for retirement should help you achieve true independence in your golden years. You should be the person helping your children pay for your grandkid's education and such.
Depending on your kids financially after retirement and having them pay “black tax” can significantly hinder their financial growth, creating a generational poverty circle. Even worse, it can contribute to disunity in the family.
Retirement planning will help you create safety nets from where you will be generating income after retirement to support yourself and not burden others with your financial needs.
Retirement can be pretty dull. Without enough preparation and financial planning, it can feel like jail. You will have a lot of free time, and without solid financial muscles, there is only little you can do.
Planning for retirement can help you afford to accomplish things and achieve dreams you couldn't while working. One of the most adventurous hobbies retirees like to take on is travelling. With enough planning and saving, you can decide to take on travelling the world.
Planning will allow you the luxury to leave big cities and move to a secluded beach town and take on expensive hobbies like golfing. Or you can take on fulfilling duties like spending time with your family and volunteering for causes you believe in and support. These options are only doable when you don't have to worry about money.
With advancements in medicine and health care, people live longer than ever. The life expectancy in Kenya is rising and will reach 72 by 2030. And it is set to only rise higher from there. The average person will likely spend upwards of 30 years in retirement.
You might have to consider working in fields such as consultancy after retirement. It will ensure that you don’t have to dig into your retirement funds earlier and gives you time to contribute more towards it.
You can plan your retirement fund to last long without the risk of running out of money with that in mind. A great rule of thumb is investing in long-term income-generating schemes that pay attractive dividends and guarantee capital gains.
After years of labouring in the workforce, your health is likely to take a hit as you age. Risks of contracting diseases increase, especially conditions associated with old age like arthritis, type 2 diabetes, hypertension, and Alzheimer's disease. With the rising cost of health care, treating these diseases can cause a significant financial burden to retirees.
You are likely to lose your independence as you age. You might require round-the-clock home-based care or a nursing home. Long-term care is costly, and without proper planning, your health can deteriorate significantly.
Planning for retirement will put you in a position to address these problems in advance and make appropriate investments like getting health and long-term care insurance.
It is never too late to start planning for your retirement. Many strategies are available depending on your goals; you should go for investment vehicles that align with them. Knowing beforehand when you need to retire, how much you will need, and how you plan to spend your retirement should guide your retirement plan.
Learn More>> Planning for Retirement: Key Factors to Consider