The prospect of retirement introduces all manner of emotions such as delight in having more free time and excitement about the opportunities and possibilities which potentially come from a new stage of life.
There are other emotions such as apprehension over finances and health. Health and wealth management go hand-in-hand as health care costs can rapidly eat away at your income and assets, depending on the nature of your health challenges or the health of a spouse.
Preoccupation with health and financial management increases for those over 50 and more so for those over 60. However, as retirement planning can be involved and somewhat daunting, it’s best to get started early.
There is typically a gap between what we want in terms of retirement income in the future and what we actually do to make this a reality.
Retirement planning is not about magical thinking. It is about steady, hard work that will pay off because of realistic thinking and planning.
Do not wait for the ‘last minute’ to start preparing. The earlier you begin to save and invest for retirement the better. If you are in your 50s and just now planning earnestly for retirement don’t be intimidated. There is still much that you can do.
Planning is key and makes all the difference for quality of life as we grow older. A good place to begin in pre-retirement planning and for those recently retired, is an honest assessment of assumptions, expectations and needs. Each individual’s or couple’s needs and plan must meet their particular circumstances.
Correct assumptions are critical to good planning. Assumptions should be realistic. Retirement may last for 15 to 25 years or longer. Many financial advisors will tell you to strive to have at minimum 70 per cent of your pre-retirement income or salary.
There is a fundamental assumption that those with a pension should make: most government and private employee pension plans will not be sufficient to live off following retirement.
Most retirees will need to supplement their income to maintain a certain quality of life. Those without pensions will need to save even more and to invest more.
Some questions to ask yourself: What amount of income or resources will I need to enjoy a decent quality of life including unexpected challenges, especially for health care? Are there areas where I can cut back? Are there investment strategies which I’ve never fully explored? Are there new potential revenue streams?
Assess your financial position
What you need depends on what you already have or may reasonably expect to have in savings, income prospects and holdings. So, determining net worth (i.e. the total value of your assets less the value of your debts) is essential. Reducing expenses and maximizing potential income should be a core element of your retirement planning strategy.
An honest assessment of your financial position will help in preparing annual and longer-term budgets of expected expenses, revenue and income, and in managing your spending and debt. A financial advisor can greatly help with such a task.
Minimise your debt
The ideal is to enter retirement with very little to no debt. If possible, consolidate your debts and negotiate a rate reduction with your banker so that you are paying the lowest interest rate possible.
Credit card debt can be crippling. If you are 50 or over you should use credit cards sparingly–mostly for emergencies or essentials. The money you save from not carrying credit card debt may quickly add up and can be used for savings and investments for retirement.
Maintaining a mortgage on a retirement income can be excessively burdensome. Paying off mortgages before retirement is a key financial goal. With the cost of living ever increasing and incomes often not keeping apace, having a mortgage and health care costs eat up your income during retirement can lead to deep financial problems.
Saving and investing
An overriding financial goal of retirement planning is the mix of income sources than can be utilised for retirement.
The income mix may include pension benefits, savings, income from stocks and bonds, property and rental income, income from new or part-time work and other income sources. Government benefits, such as those from National Insurance should be added to the mix.
Retirees should look for sustainable income which comes from diversifying their retirement portfolio including from assets which tend to grow over time such as property and real estate, as well as securities such as stocks, bonds and mutual funds, all of which can keep pace with or outpace income needs and inflation. Income growth is another key to retirement planning.
Remember that in retirement, it is always essential to have cash on hand as well. Fixed-deposits and annuities held with commercial banks and/or cooperatives can help you achieve this.
As you approach retirement, you should be reasonable and increasingly conservative when investing. Less risky investments include Bahamas Government Registered Stock, Treasury Bills and a variety of government bonds.
An investment advisor may recommend other stocks, bonds and mutual funds in which to invest. Be sure the investment advisor is registered with the Securities Commission of The Bahamas by visiting the Commission’s website: www.scb.gov.bs.
Beware of fraud
As we grow older and become more anxious about our finances, we may more easily fall prey to financial exploitation. Check, double-check and recheck investment promotions and options, including those proposed by family and friends. Be sure that any professional offering you investment advice, and, where applicable, the products they are recommending, are registered with the Securities Commission of The Bahamas. Registered persons can be found on the Commission’s website www.scb.gov.bs.
Retirees are often the target of financial exploitation schemes by fraudsters who disguise themselves as financial planners and experts. These individuals prey on the needs and unrealistic hopes of retirees who are often anxious to increase their income.
It cannot be emphasized enough that you should do extensive due diligence and get references on financial planners and advisors. You should approach with considerable care any financial plans or ideas you hear about. For more tips, check out the publication “Tips to avoid fraud and scams”, which can be downloaded from the Commission’s website.
Your home as a retirement asset
Rental and property income is a potential major source of income for retirees, often providing more income singularly than any other source. Real estate holdings, whether vacant land or developed property, tend to increase in value above inflation.
Such holdings can be used as collateral if necessary or sold in order to provide needed cash. However, be careful how you utilize your home equity, remortgaging only if absolutely necessary and for a reasonable sum which can be paid off as quickly as possible. Quite a number of people in their senior years are at risk of losing their homes.
Consider selling your home and moving to smaller accommodations, utilizing the proceeds of the sale of your home to purchase more modest accommodations as well as for cash on hand and for investment purposes. You may consider reconfiguring your home for rental purposes or dividing your home property for the same.
You should not sell real estate too readily but if it must be sold, it is best, when possible, to reinvest or save much of the proceeds of realty sales.
Those afforded a gratuity should save the bulk of this money or invest it or use it to pay off debt or some combination depending on your circumstances. A gratuity should not be splurged. What seems like a large sum today, can be gone more quickly that you may imagine.
If necessary, just before retirement, some money from a gratuity may be used for essential expenses, such as buying a reliable vehicle, one that will last for some time and that will not require constant repairs.
Working after retirement
If you are about to or recently retired, write a new resume. But instead of doing it in chronological order, highlight your skills and work and volunteer experience.
This exercise may give you a boost of confidence and help you to realize that there are businesses and other groups who may have part- or full-time work that is right for you if you are so inclined. Youth is a value. So too, experience and wisdom.
A year ago, one retailer hired a recently retired woman in her early 60s to do sales work. The employer appreciates the maturity, experience and work ethic of the older employee. More employers are recognizing the same.
There are retired accountants doing work from the comfort of their home; retired teachers tutoring students; retired nurses doing home health care and other retirees boosting their incomes and doing work they find manageable and enjoyable.
One important retirement investment is investing in yourself by, for example, taking courses and workshops in various subjects, including online, and learning new skills and honing lifelong talents and hobbies into new possibilities, all of which may be translated into work and business opportunities. Part of the funds derived from such work should be placed in investment opportunities and/or savings.
Keep on investing in yourself in terms of income possibilities and in terms of your happiness and health in retirement: mind, body and spirit.