By Shelley van der Westhuizen
Preparing for retirement or any big life event means you can have more confidence in your chance of financial success. Gathering your information and going through several steps will help you build a full picture of what to expect in retirement.
Being prepared and proactive is a good idea, whether you are in the first 10 years of your working life or your last 10. In fact, the further you are away from retirement the more options you have.
Do you want to plan for your retirement, understand your pension options and get ready to make decisions that are right for you? Alexander Forbes has eight steps for you to take to build your personal retirement picture:
Step 1: Decide to be prepared
Become aware of the fact that you are on a journey to a time when you will have to live on your savings, no matter your age. The purpose of saving for the future is so that you can buy yourself a pension one day when you can no longer work. Taking the first step to build your future financial picture starts with a decision to be prepared.
Step 2: Save more
Look at how much you’re currently earning, and what portion you’re saving for retirement. You’ll find this information easily on your payslip. Look for places in your budget where you can save more. According to Alexander Forbes research, you need to save at least 17% of your salary for 40 years to achieve a pension amount that is similar to your salary just before you retire from your employer.
Step 3: Estimate your expected pension
You can find out what pension you’re on track for based on:
1. Your age,
2. The amount you’ve already saved, and
3. The amount you’re saving each month.
People are always keen to know this amount. Sometimes it can be a bit of a shock if it’s much lower than the amount you’re currently earning.
Step 4: Look at your monthly expenses
Monthly expenses are often linked to how much you are currently earning. They are likely to be more than the monthly pension you can expect. Take some time to think about how you might reduce your expenses after you retire if it’s only a few years away. People with more time should look at their current expenses to see where they can reduce or delay expenses to save more. Remember to put some money aside for emergencies or unexpected events. Having savings when things go wrong helps to reduce stress and keep you on track to achieve your goals.
Step 5: Assess if you are on track
You’ve compared your expected monthly pension in retirement to the expenses you think you’ll have after you retire in the previous step. Now you’ll be able to assess if you are on track to receive a pension you can live on. If so, you can keep going.
If you’re not on track, look at ways to improve your future picture by:
- Decreasing your expenses;
- Thinking about working longer
- Finding other sources of income
- Saving more
This is a critical part of retirement planning and gives you your best chance of reaching your goals. The earlier you start, the more ways you have available to you to improve your future picture.
Knowing where you stand and what you have to work with as you get ready to retire will give you the best chance of reaching your goals.
Step 6: Find out about different pensions
If you’re closer to retirement, you can start exploring different types of pensions and weigh up their advantages and disadvantages.
Step 7: Review your full retirement picture
Once you have gone through these steps, you should have your full retirement picture. It shows the importance of being aware of where you stand, knowing all your relevant information and keeping track of your progress. Your picture is something that you should write down and revisit at least once every two to five years if you’re far away from retirement and more often if you’re closer. Having it all written down will help you set goals and make plans to stay on track. You can keep making improvements that get you closer to having enough to live on in the future.
Step 8: Get help from an expert
Share your retirement picture with your loved ones, as well as a licensed financial adviser. Advisers are professionally trained to help you with your financial planning and make decisions that are right for you based on your personal circumstances. Having expert help with your finances gives you the best chance of success.
Alexander Forbes has developed a free gamified retirement planning tool, My Retirement Picture, which takes users through the above process.
Shelley van der Westhuizen is head of financial well-being strategy and applied research at Alexander Forbes