Retirement always seems far away - until it isn't. Every day, retirement draws closer and closer and before you know it, you’re faced with twenty years or so of reduced income and free time. Whether you are in your twenties or already in your fifties, it’s never too early or too late for retirement planning. Unfortunately, retirement planning is something that most people tend to put off as there always seems to be decades to go before retirement. However, the reality is that retirement is a lengthy time period with a drastic reduction in income and spike in medical bills etc. Planning for a successful retirement as early as possible is highly advisable.
Here’s how you can get a head start towards a successful retirement:
Know your retirement needs
Not many people think about retirement until it’s at your doorstep. While the future is unpredictable, you should have some kind of idea about what your retirement would be like, especially in terms of cost. Successful retirement planning first starts from knowing what your retirement would most likely look like, what you ideally want it to be and how much all that would cost you. Some of the things you need to think about and their costs are:
- Where you will live: would you continue to live at your home? Is there rent or tax to be paid? Or will you move into a retirement home?
- Your medical bills: you will likely face an increase in medical expenses, what with old age catching up. As insurance schemes expire at a certain age, it is very important to have a fund for this and a large one at that.
- Cost of living: this includes all your food, electricity, telephone and transportation costs
- Supporting your family: if you plan on having children (or have other young people closely related to you), you might need to support them in terms of their wedding expenses, higher education costs and other contributions
These are just some of the costs associated with retirement. Keep in mind that economies are volatile and keep a buffer when mapping out the costs for each.
Save - and don’t touch it!
Now that you have identified just how much money you will need to retire, now it’s time to collect that money. Start with depositing a portion of your salary into a retirement account each month - you can calculate just how much by dividing your budgeted retirement cost by the time left until your retirement. If that amount is too large to practically save from your salary each month, worry not. Save as much as you can from your salary and let’s take a look at how you can earn more money for retirement below. Most importantly, resist the temptation to dip into your retirement fund at all costs.
Don’t depend solely on your employer’s fund
Most private employers in Sri Lanka are required to set up and contribute to their employees’ EPF and ETF accounts, while government employees are guaranteed their pensions. However, avoid depending solely on these payouts (which will have grown to a significant amount by the time you retire). Look into other forms of retirement accounts, especially those provided by banks, and start your own retirement account.
Find a revenue stream for post-retirement
Don’t expect to rely entirely on your savings (your own or your employers’ fund) during your retirement. Look for ways you can earn an income during your retirement. It could be consulting, part-time work, or starting your own business. This will not only supplement a successful retirement fund, but it will also help keep you occupied by filling up all the free time you suddenly have on your hands.
Learn about investment
One amazing way of getting an income post-retirement is to gain returns from investment. During your youth, try out your hand at investing your money in long-term ventures, such as property or land rentals, dividends from high-performing companies etc. This ensures that you receive a significant amount of money on a regular basis, but it also comes with minimal effort. Think about it as reaping the benefits of the fruits of the efforts you put into investing in your youth.
Look at retiring early
When doing your retirement planning, it’s not a must to retire at the legal ages (50 or 55 years of age). If you have the means, try and retire even earlier than that! By planning for an early retirement, you free up so much time at an age where you have the energy to fully enjoy yourself and take advantage of that free time. Planning to retire early means that you might need to push yourself a bit harder to prepare for it, but if you have solid income streams, retirement funds and multiple returns on investment, this is not something out of the realm of possibility for anyone.
Get rid of debt
One of the most important aspects of successful retirement planning is to walk into retirement with zero outstanding debts. As your income is going to be severely reduced during your retirement and expenses will be highly unpredictable (especially in terms of medical bills), carrying a heavy financial commitment over the years is highly inadvisable. Include settling all debts prior to retirement into your pre-retirement plans as your final step towards a successful retirement.