How to plan for retirement
When planning for retirement, what are some of the things I need to be aware of?
M Khoza
Jason Bernic, Financial Planning Coach at Old Mutual Wealth, responds: Retirement is a major event in people’s lives and it is critical to put the correct investment strategy in place early. You need a plan to make your money last, particularly now that people generally live longer and risk outliving their savings.
You need to think about how you want to spend your time in retirement, and what the associated costs are. A common misconception is that expenses fall in retirement. In reality, expenses often rise, and not only because you may incur more medical expenses. With more leisure time, people often spend more on eating out, travelling, hobbies and other activities.
You need to think about how much income you can realistically draw from your investments without eroding your capital. Understand what you have, what you need and how much risk you need to take to get it. This is where a financial modelling tool comes in handy. It can help you (with the help of your financial planner) to create various scenarios to understand what type of investments are best for you, given your age and stage in life. It can help you to decide on an appropriate course of action.
Start building your capital early to ensure that you accumulate enough to retire comfortably. Compound interest can have a significant impact on the growth of an investment and is more powerful over a longer period.