Preparing for Retirement

The earlier preparations for retirement start, the better.

A major challenge for the retiree is crossing the threshold from saving funds to using funds. This is a major psychological shift that must be skilfully handled and may require professional guidance.

It is necessary to have an idea of the cost of the retirement lifestyle even in current dollars so that meaningful projections can be made and adequate funds saved. This will make it possible to make a budget for retirement.

It is important to determine how retirement will be funded. How much is likely to come from employer-sponsored pension schemes? How much will be required from personal savings and investments? Will these be enough to fund the anticipated lifestyle?

If funds will not be adequate, how will the gap be filled? Are there assets that can be sold to provide funds to fill the gap? Will current spending be reduced or will expectations for the desired retirement lifestyle be scaled back?

The more tax-efficient the investment portfolio is and the earlier investments are made in tax-free or tax-deferred vehicles the more funds will be available for retirement. It is useful to decide how investments will be distributed across the various vehicles stock, unit trust/mutual fund, fixed income instruments and real estate to realize the desired levels of income.

Decide early on such matters as the time of retirement. Early retirement has several challenges: it reduces the amount of time for building up resources while lengthening the time over which these resources are to be spread.

Decide if retirement will be spent in a different part of the country or abroad, if the same residence is to be used or if it is to be sold and replaced by a smaller house. What provisions are to be made for health care? How will these be funded?