Retirement Plans – For a Comfortable Retirement
Financing Retirement
How Much Money do I Need to Retire? – All the secrets of how to plan a wonderful retirement.
One of the big questions people have is “how much money do you need to retire?” While understandable as the big question it is nonetheless the wrong question. If you are retired or retiring the correct question is “how much money have I got?” Of course if the retirement date is sometime in the future it is worthwhile planning to build as much wealth as possible for the eventual retirement date. Very rarely would a retiree have too much money. One of the reasons for this is that you will ideally require an income continuing at the same level as your income before retirement. Your retirement period can be for anything up to half your total lifespan, which is usually many years indeed.
Folly of Get Rich Quick
Another mistake is to assume that you will collect a lump sum and somehow magically multiply it. After a lifetime not managing wealth people are seduced by the prospect of sudden windfalls, that nearly always end up in downfalls. They may as well play flip a coin, double or nothing. Many retirees have seen the long awaited lump sum disappear as they foolishly try to get ridiculous returns on investments with which they are totally unfamiliar. So what should you do? At this site you will learn more as we add to your store of knowledge. It is quite reasonable to plan your financial future, starting from where you are currently. Investing should be prudent, but equal to your requirements. However, it is important that you fully understand and accept the disciplines that are necessary to take on the reasonable risk of outcomes, especially if you are not familiar with the return and risk equation.
The Risk Return Equation
Here is a simple example of the risk return equation. You put $100 into a savings bank deposit and get interest of $3 a year, which is 3%. The $100 will still be there so you now have $103. Alternatively, you buy shares in the bank and get a dividend each year of a realistic 5%, which is $5. In Australia you might also get a franking credit, which can be another $2.14, so you have gained a total of $7.14., which is much better than just $3.
But for the shareholder the price of the bank’s shares might have gone up or down. The original shareholding will likely now be more or less than $100. Your shareholding might be worth $80 or $120. Depending on the economy and the management of the bank you might gain or lose.
It is clear that it will be better to earn a higher return by buying the bank’s shares rather than putting money into a savings account, but while the prospect of gain in capital (the $100) is attractive the risk of loss of capital is a concern.
Before investing in growth assets, such as bank shares, or other company shares you will do well to get a history of the bank’s performance. You can look at dividends, and franking credits, paid over prior years, and you can look at the trend in the price of the banks shares over prior years.
Do Not be Deluded by Suggestions Retirees Should Bank in Cash
One thing is clear, while a retiree is not in a position to take a risk investing in growth assets, such as shares, and the recommendations from the authorities recommend safe cash as a predominant option, the truth is that few retirees can afford to risk losing the benefits of growth investing. A retiree needs good income (dividends and franking credits) and the growth in capital that a shareholding in quality shares, such as the big banks, can bring.
So, What Should You Do?
Firstly, we need to establish a strategy. A strategy is simply a well thought out investment plan. The plan is best written for your ongoing reference. In the plan you will decide what you will do given future events. Now you do not need to panic, you will already have planned exactly what you will do, for example if the newspapers suddenly report the future financial doom as they do on a too frequent basis. (remember they are trying to sell newspapers, not trying to plan retirement.) For more on a strategy refer to website: http://www.files88.com
What you will also need to be planning or understanding is a new lifestyle. There are many traps that you need to be aware of, and certainly it can help if you plan to continue with some measure of activity similar to your working life before retirement.
Every Man Needs a Shed.
When a couple retire after spending years and decades parting for the working day , they are suddenly forced into sharing the same space every day. I recall visiting a retired successful businessman who was proudly showing me the equipment he designed and built for bending heavy steel. It enabled one person to do what would otherwise require more hands. Here he could make a mess, here he was in control and at the same time he was giving his wife her space. Lifestyle factors are as important as economic factors for a successful, happy retirement. Enjoy retirement, indeed enjoy life.
Disclaimer: This information is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on the information, consider the appropriateness of the information, having regard to your objectives, financial situation and needs.
About the author: Ronald Heron is a retired financial planner, who has observed how many have become wealthy, while others gambled for nothing. He promises to also share with you the secrets for practical living that you may never have learned before. Life is good.
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December 8, 2012 1:50 pm
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