retirement. In its most basic sense, we prepare for retirement by saving now. We accumulate what we can for our own future while we are still able to work and produce.
There will come a time when our physical bodies will age. We will not be in shape as we used to. Our capacity to work will be greatly diminished. Most of us will consider that as the time when we need to retire.
The Present vs. The FutureWhen we set aside what we earn for our future use, we essentially delay the use of our current resources. For instance, instead of buying an iPhone now you instead save the money for later use.
It boils down to how much you value the future as against the present. Would you rather save a portion of your income to allocate for a future need? Or would you rather spend it now to make you happier knowing the future is uncertain?
I believe the right answer is to aim for a balance. Our resources are limited. We have to allocate wisely so that we get optimum results. But for most people, they just save without any consideration.
For rich people with huge incomes, it may not really matter. But for ordinary folks like you and me, we ought to be wise with how much we save for our retirement fund.
Retirement PlanningSetting retirement goals may be a good way to focus our efforts. Although it’s difficult to predict the future, we still have a rough idea of how we want to spend our retirement days.
There may be things we want to do. You may want to travel or do more of your hobbies like read more books, watch movies, play more golf – all of these things should be part of your retirement planning.
A common mistake is to just guess, without any consideration, how much your monthly expenses will be when you retire. This is what most “financial advisor” would do when they are in a hurry to sell to you their financial products.
They’ll calculate backwards how much you need to save now based on that monthly expense estimate you gave them. On top of that, they’ll ask you what your risk tolerance is even if you don’t know how to gauge it. You’re usually left guessing.
Asking the Right QuestionsTo make your goal setting effective, you’ll find it helpful to ask yourself good questions that will lead you to the best answers. What do I mean by that? Well, it means getting below the surface of what a “financial advisor” would normally ask.
For example, don’t just guess how much monthly expense you’ll need upon retirement. Instead, ask yourself what things you want to do when you retire. That way you’ll be in a better position to calculate how much those activities would cost you in the future.
But before you plan on doing something in the future that you think you’ll enjoy, why not try it first? It will be frustrating to plan so far ahead only to find out it’s not what you really want.
A lot of people may say they want to do more fishing, painting or gardening when they retire. That’s great if you’ve been doing that for a while. You know you’ll really enjoy it. But if you haven’t done it before, what made you think you’ll love it when you get older?
Investments for RetirementDifferent financial businesses (banks, insurance companies, pre-need companies, mutual fund companies) offer products for your retirement needs. The idea is for you to save regularly a portion of your monthly income. You’ll then invest the savings to the product of your choice so that the fund may grow. (Take note that these are on top of government mandated pension benefits that employees receive when they retire.)
But with all these financial products to choose from, you’re told to choose the one which aligns with your risk tolerance. That’s the difficult part. Risk tolerance is not something you know based on how you feel inside. It’s not a gut-feel.
A true financial advisor, the one who will be of value to you, will help you determine your risk tolerance. He or she will ask you questions regarding your present financial standing. He’ll objectively question you on everything that may affect your finances.
Your age, for example, is a factor. The younger you are, the more risk you can take just because you have more time to recover and try again. You may consider investing in stocks more than bonds.
Your Future, Your PlanDoing our homework to create a good retirement plan is something all of us should make time for. This process can also help us know whether we’re aiming for something doable or one that is unrealistic. It won’t guarantee a smooth retirement, but it will guide us to the right path.
Hopefully, we’ll be able to wisely save and invest for our retirement. It’s not an easy thing to plan for because there are many variables to consider. But an evolving plan is better than no plan at all. No one will care more for our future than we ourselves. So let’s go ahead and plan for our retirement now. It’s never too early.
Photo Credit: lifecreations (Creative Commons)