Saving for Retirement
What retirement lifestyle do you plan to have?
Whether you realize that dream or not depends heavily on the approach you take to retirement savings. As life expectancy increases to the point where the retirement years of some persons may be long as their working years, savings becomes increasingly important in retirement planning.
Expect your retirement savings plan to change in anticipation of or in response to changes in your life circumstances such as employment changes, changes in marital status, health and so on. Policy changes relating to pensions as well as economic conditions may also induce change.
As a first step, figure how much you expect your retirement lifestyle to cost in light of current costs and determine how much you need to save. All things considered, you may need income equivalent to 70% to 80% of your income at the time of retirement to fund your retirement lifestyle at a level comparable to your pre-retirement lifestyle.
Consider what level of risk makes you comfortable and let that guide your savings/investment strategy. Never put all your eggs in one basket. There are many different types of safe savings/investment instruments available to take you safely to your retirement destination.
It is important to retain as much income as possible. Make full use of instruments that earn tax-deferred or tax-free income. Let the power of compounding work for you; do not disturb your retirement nest egg. Make some room for investments that increase in value to give you protection against rising prices. Let professional managers have the headaches for you; invest in unit trusts or mutual funds.
The earlier you begin to save for retirement, the more your nest egg increases and the smaller the regular sum required to be saved to reach your goal. Enjoying your desired retirement lifestyle depends not only on the pension from your employer-sponsored pension plan and social security but, importantly, on your own level of retirement savings.
Your approach to savings then will have much to do with your eventual retirement lifestyle.