August 11th, 2014

Get a grip on retirement


Get a grip on retirement

Retirement planning can be more intimidating than any other personal finance topic.  The years can creep up and suddenly you find yourself unprepared.  Retirement is not something most people look forward to, but it is a necessary part of life.Picture yourself at the end of your working years with family in tow and you are able to keep the lifestyle you had enjoyed during that period. You are well equipped financially to handle all your expenses, treat yourself to some fine dining  and take Mrs. Retiree on that long transatlantic cruise you promised when you were  still working.

Now, imagine yourself in retirement with all your family commitments, bill payments, university fees for your teenaged children and home repair expenses. But in this scenario you are struggling financially and not able to enjoy the lifestyle you maintained in the early days. To make matters worse, you are not in the pink of health and confronted by mounting medical expenses. Which of these two scenarios do you find more appealing? Of course, the one that brings comfort and peace of mind. How do you achieve it then?


A common habit among employed persons is to place significant reliance on a company’s pension plan to provide for retirement. Similar reliance is often placed on NIS contributions and an old age pension to meet their retirement obligations but the reality is that most people find this challenging.

Planning not to retire is not a retirement strategy.  Even if you win the Lotto, this does not eradicate the need to build one’s own retirement investment portfolio. There are practical realities, and unforeseen circumstances, especially as we get older. Taking a look at your sources of income for retirement well in advance will prompt you to identify some other opportunities for earning income. Perhaps you are an accountant or teacher, you can prepare yourself to rely on these skills for additional income when you are no longer at a desk or at the office.

On the expense side, you will need to consider a few factors since expenses may vary according to your social circumstances, social lifestyle, longevity, healthcare issues and inflation which reduces the value of your dollar over time. As a result your retirement assets must grow at least as fast as inflation in order to keep up.  It may surprise you how much inflation can erode purchasing power so it is important to keep it in mind when you determine how much you want to save for your nest egg every month. A $200 monthly contribution is nothing to sneeze at right now, but after 20 or 30 years, $200 won’t buy you very much. As you continue with your retirement plan year after year, simply check the inflation number each year and revise your contributions accordingly. Provided you do this, you should be able to grow your capital at your estimated real rate of return and reach your target nest egg.

As in all successful ventures, the foundation of a good retirement is planning. The composition of the investment portfolio will depend on several factors including your risk appetite, financial position, current age and target retirement age. Such a portfolio may include stocks, bonds, mutual funds and other assets.

One pitfall to avoid is the heavy reliance on your company’s pension plan to provide for retirement. More often than not, this proves to be inadequate and should be supplemented by a personal retirement vehicle such as UTC’s Universal Retirement Fund. Our Individual Retirement Unit Account(IRUA) and Pensions Plus offer guaranteed income upon retirement for life. These vehicles can strengthen your retirement planning and provides a cushion to cope with some of life’s uncertainties that occur during the golden years.


For younger people, the power of compound interest can give you more motivation to save early and often. The power of compounding, which simply means interest being earned on interest, makes it possible for your retirement savings to increase exponentially.

Consider this: Someone who puts $4,000 a year (about $333 a month) into retirement accounts starting at age 22 can have $1 million by age 62, assuming 8% average annual returns. Wait 10 years to start contributing, and you’d have to put in more than twice as much –  $8,800 a year –  to reach the same goal. The more years you have to save, the more effective it is. So the earlier you begin contributing to your retirement and the longer you are able to leave the money in your account, the greater the opportunity you have to enjoy the benefits of compounding.

If you get your act together now, you can achieve financial independence decades ahead of your peers who keep muddling from paycheck to paycheck.

Remember that the single best way for investors to protect themselves from risk is to spread their portfolio across several different investments. Such asset class diversification allows investors to limit their risks by reducing the effect of a possible decline in the value of one any asset class or security, so if one asset class or security underperforms the others can offset the impact.

As retirement approaches, the allocation to equities in one’s portfolio should be reduced as you may want to preserve your wealth and reduce exposure to the volatility of stocks.Investors may want to manage risk by investing in fixed income instruments such as Treasury Bills (T-Bills) and high-quality bonds via bond or income mutual funds.

You must plan for your retirement so that you can enjoy it in comfort. Don’t be caught playing catch up because you may not be able to recover. And remember, putting your finances in order is important for your family. Your investment of time, affection and security for your loved ones during your working years could repay you with rich dividends in your golden years.

Planning for your retirement should begin NOW – even if it means a small amount being utilized through a standing order.  Here are a few tips to consider:

Start saving

It is advisable to start investing towards your retirement upon receipt of your first paycheck. Start small if you have to and try to increase the amount annually. The sooner you start saving, the more time your money has to grow.

Plan ahead

Retirement is expensive. In order to maintain your standard of living when you stop working you should take charge of your financial future now. The key to a secure retirement is to plan ahead.

Leave retirement savings alone

If you change jobs throughout your professional life, it is advisable that you leave your savings invested in your current retirement plan, or roll them over to your new employer’s plan as far as possible.   It much better to start saving for retirement from young. While retirement may seem a long time way, you should take a serious approach to saving to ease the stress later.