There are many reasons to celebrate turning 5-0 – it also means retirement is just around the corner, and it’s time to get serious about planning.
Like every stage of life, your 50s brings certain steps you should take to begin preparing for retirement. By the time you’re 50 you should have laid the groundwork for retirement and have a growing nest egg. But what do you do if you haven’t been paying attention to your retirement fund? First, don’t panic. There’s still plenty you can do to get your retirement set up and enter your golden years debt free.
Here’s your retirement checklist for your 50’s:
1. Get a clear idea of the amount you’ll need to retire
Your 50’s are the homestretch of your retirement savings journey, so now is the time to assess your progress and determine a savings goal. You don’t want to hit 60 and discover you haven’t saved enough.
2. Evaluate your retirement savings
Now that you know how much you’ll need to retire comfortably; your retirement savings should be at the top of your priority list now. It’s time to start asking the hard questions; How much do you have saved? Do you need to save more? What are your options?
Having a clear idea of what you want your golden years to be like will keep you motivated and focussed on accomplishing your savings goals. And keep in mind, the sooner you plan to retire the more money you will need to have saved. The money that you have saved should be enough to allow you to purchase an annuity (monthly income) that replaces at least 60% of your salary.
3. Evaluate your current budget and expenses
Start to identify expenses you can eliminate now or when you retire. Loans on your vehicles or home, pay them off. Carrying credit card debt, pay it off. You want to be free of as much debt as possible by the time you retire. To help you achieve this, look at where you can cut-out daily expenses and save more, and boost your savings by taking advantage of catch-up contributions and tax-free savings accounts.
4. Keep contributing to a retirement fund
Retirement saving is a (working) lifetime pursuit. Life expectancy is increasing, meaning we all require more money to fund our years in retirement. You therefore need to keep saving by contributing to a retirement fund until you stop working. Consolidating your retirement annuities is also a good idea as you may be duplicating some investment administration costs.
5. Focus on the investment fees and asset allocation of your
There are two things you need to focus on in your retirement annuity: investment fees and asset allocation. Your retirement investment fees should be as low as possible. Understand that a balanced portfolio that contains 75% in equities has historically delivered a real (after-inflation) return of only around 5% pa – before fees. Fees of 2% or 3% therefore reduce your real wealth-building return tremendously – that means you lose up to 60% of your real return. It effectively halves the value of your final pension. So, find a low-cost retirement annuity.
6. Assume age appropriate equity risk
Your asset allocation should match your time horizon. At 48, you can still afford to assume considerable equity risk if you plan to retire at 65. Maximise equity exposure until 10 years before retirement, will (hopefully) benefit from the long term high real returns delivered by equities over time. In the last ten years before retirement, your focus should shift from growth to preservation, to protect your accumulated savings.
7. Make sure your investments are working for you.
It may be time to rethink how your investments are allocated. Retirement saving is about securing your minimum goal with the least amount of risk. Anything more is a bonus. Take the time to review your investment mix, based on your time frame and tolerance for risk, you might be able to assemble a growth-oriented portfolio of investments that still provides a measure of stability. Think about whether you want your savings managed actively, or through indexed funds. By investing in a market index fund, you secure the average market return at a low cost.
The better your retirement plan, the better the outcome.