According to Statista, in 2015, 41% of UK residents had a retirement plan but they hadn’t it written down. Let’s face it, most of us seldom think about our retirement plan – and even less about writing an actual checklist for our plan. Nevertheless, those people who do write one will be able to have things more under control before, during, and after retirement comes. The following are five essential items you should have in your retirement planning checklist to be ahead of the game.
1. Risk Management Strategy
At first sight it might seem that you need to be a financial genius to have a risk management strategy. However, finances are simpler than they appear to be. Most funds will offer predetermined portfolios with their expected risk. Thus, it is for you to choose the one you like most. As a rule of thumb, people who are young and aren’t risk averse can take portfolios consisting of stocks and precious metals which have a huge earning potential. Moderate portfolios also exist and include a combination of equity and fixed-rate bonds. If you are about to retire, it’s preferable that you stick with the most conservative portfolio available. This way, you can keep risk to the minimum and preserve the capital you have saved throughout your life.
2. Saving
Common sense dictates that if you ought to retire, you should save in the first place. In the UK in case you are employed, you can either choose or reject a workplace pension scheme. With it, a part of your income is deducted as savings. This is a sure-fire way to have the necessary funds at the time of your retirement. There are also personal pension plans you can get from banks and life insurance companies. If you choose any of these, they will manage your funds depending on your risk management preferences. In any case, it’s advisable to save at least 10% of your total income into a pension fund. It might hurt in the short-term, but it’s money you will receive later on
3. Debt Management
Keeping debt at bay is a priority when you are reaching your retirement age. Saving and getting rid of debt are correlated and work wonders to ensure you have enough capital at your disposal when you get older. Many people have mortgages and they are completely acceptable. While money borrowed to buy the property you live in is a good investment, getting a loan for recreational purposes is not. Paying upfront and resisting the urge to use credit cards will save you from paying lots of money in terms of interest – money which can be saved for the future.
4. Do You Have a Master Plan?
Seeing the forest for the trees is not a good approach if you want to accomplish your retirement goals. Having a master plan takes time and dedication. Just like planning for a vacation, you have to take many things into consideration and if necessary, give them a second thought. The first step is to set up your retirement goal which basically states your retirement age and the amount of money you want to retire with. This part makes up 50% of the equation. With your goal in mind, then you should figure out how much money do you have to set apart each month to reach it. A financial advisor from your pension fund company can help you this calculation.
The benefit of having a master plan is that you don’t lose time in the details and it makes matters a lot simpler. The master plan is not a fixed plan. It can change with time and conditions. Every time your financial conditions changes for the better or for the worse, you should adjust it accordingly. Be realistic, and most importantly, stick with the master plan!
5. Is Everything Aligned?
The final point of your checklist is to check out if everything is aligned. This means that your goal, monthly savings, risk management strategy, and debt management strategy are all synchronized. For instance, a person can’t aspire for a huge amount of funds when you retire if he or she have large debts and doesn’t even care about going through their risk management strategy. All cases are different. Although financial planners tend to divide people into three categories depending on their ability to take on risk, your goals and steps to get there are unique. Thus, it is up to you and your financial advisor – banks and other institutions should provide one when you sign up for a retirement account with them – to make sure everything is going as planned.
You weren’t taught how to make a retirement plan checklist at school, and that’s alright. With posts such as these and others available on this site you will easily enhance your personal finance skills in no time.
The information you have provided is valuable and I want to give you a huge thumbs up for it. And thanks for sharing your thoughts regarding this.
Review your asset allocation. Don’t panic and put everything into cash. See if you have too much in equities and reduce your allocation to suit your risk tolerance. A good rule of thumb is that the percentage of cash assets should be equal to your age. Hope this makes sense and helps you.
Pearlie S.Gilligan recently posted..How to Leave Large Sums of Money to Charity in Your Estate Plan
Hi, a great set of things to consider.
I retired 5 years ago, and spent the previous 2 years preparing for it. My key things were
– working out what I would do, once I retired (travel was top… ) I also have a couple of great hobbies.
– making sure I had enough money in the right place. This involved balancing with my husband, who would take their pension when etc, also how accessible some of our money should be
One thing I (slightly) disagree with, is on your risk portfolio, that we should go conservative if retirement is imminent. Given my family history, I am likely to get to 95, 30+ years away, so I have a proportion ‘conservative’, the rest is still quite high risk, because I think I need some extra growth to cover for inflation in the next 30 years.
But as ever, best you take financial advice!