Retirement planning: How to prepare financially for a stress-free future

While a person used to spend around 23% of their adult life in retirement*, current life expectancies mean we can now look forward to spending an average of 33% – about a third – of our adult lives in retirement.

The plans we put in place ahead of retirement are what will ensure we’re able to kick back and enjoy those years. Here’s a checklist of what to consider.

Remember, it’s never too early to start planning for your retirement.

Take stock of your financial assets

Taking stock of your assets is always a good starting point. Generally, you would want to do this well before your retirement date to understand what you have available to work with and how it’s invested.

Going through your assets allows you to understand how the asset will produce income for you in retirement and how this income will be taxed. It will also give you some idea of the level of income you could expect to achieve in retirement.

Ensure your liabilities are settled

During our working lives, we tend to earn more than we could during retirement. If you still have debt and other liabilities when you retire, they could use up a large portion of your investment income and set your retirement years off on the back foot.

Become debt free: The avalanche and snowball strategies

The two general strategies for paying off debt are known as the “avalanche” and “snowball” approaches. An avalanche approach means paying off the debts with the highest interest rates first, such as a credit card. The snowball approach means prioritising your smallest debts.

The main benefit of the avalanche approach over the snowball is that it’s often quicker to get out of debt as you’re not accumulating more debt as you go by incurring more interest. However, if you have many small debts with their own interest rates, they can all add up and it might be better to tackle them as quickly as possible.

Ultimately, you should work with your financial adviser to create a debt management plan with a realistic timeline to ensure that you enter retirement debt-free.

Monthly Budget planning

One of the most important steps when moving into retirement is to take time to understand what your needs will be.

During our working lives, we get used to a salary being paid into our accounts every month and, we might even have a little bit left at the end for leisure or savings.

When moving into retirement, every penny becomes crucial. Even though you generally require less to live off in retirement, you will want to ensure you have enough to live comfortably.

Take a look at your current expenses and make a note of which expenses you’ll still have to cover in retirement so you can develop a plan that will match your needs.

We generally recommend that you revisit this budget often in the years leading up to retirement to track spending patterns and changes such as inflation.

See also: Do you know how much you really need to retire?

Emergency fund

Retirement is full of ups and downs – these downs can be financial setbacks or health setbacks. Ideally, you should have six months to a year’s worth of living expenses set aside for unexpected events.

This fund should not be used for general expenses, even as you enter retirement. In fact, you may wish to increase this fund in retirement to provide for unforeseen medical and other surprise expenses.

To help you keep your emergency fund separate from other savings and expense accounts, you can consider putting it into a money market or bank deposit account.

Understand your retirement investment options

Upon retirement, you’ll want to take advantage of different investment structures than when you’re earning a salary. Each investment structure has different tax implications and, in some instances, different investment guidelines or allowances.

Taking the time to understand your options before and during retirement is crucial. An independent financial adviser can help ensure that you’re not losing chunks of your retirement savings to fees and taxes, and that you have a financial plan that will enable you to meet your retirement goals and access your funds when you need them.

Inheritance planning: Your will and testament

Part of the process of preparation for retirement involves understanding how your estate will be dealt with upon your death and ensuring that it is distributed according to your wishes.

If you pass away without a will, your savings and investments that you worked so hard towards will be distributed according to the local law, which may not be what you would have wished.

An estate plan will allow you to ensure that your family is not left with a financial burden. Trusts can also help you protect your assets and allow for smooth transition of wealth and assets from one generation to the next. Financial advisors can help you find the best options for your estate.

Have a farewell party at work

Don’t forget to enjoy the moment you achieve your retirement. Leave work on a high note and celebrate your career.

You worked hard to get here, now it’s time to relax and spend your days enjoying life.

Successful retirement planning starts early and should be adjusted as your financial goals and time horizons change. Get in touch with our expert advisers on +27 (0) 21 657 1540 (SA) or +44 (0) 20 7759 7519 (UK) or at wealth@sableinternational.com.