Planning for retirement, how much should you save?
“Will I outlive my retirement money?”
Or “How much is enough?”
Two of the top fears for people who are preparing for their retirement.
Determining how much money you need in retirement is a process.
It’s not a number that you pull out of thin air.
The process includes firstly looking at your current financial situation.
Secondly, develop an approach based on your goals, time horizon, and risk tolerance.
The process should take into consideration all your potential sources of retirement income, and also may project what your income would look like each year in retirement.
We all have our “blue sky” visions of the way retirement should be, yet our futures may unfold in ways we do not predict.
So, as you think about your “second life,” you may want to consider some life and financial factors that can suddenly arise.
You may see retirement as an extension of the present rather than the future.
We believe the old traditional term ‘retirement’ is pretty much gone – and will be gone soon.
Gone are the days of working 30 or 40 years for the same employer and retiring on a healthy final salary (defined benefit) pension.
Unless you’re an older public sector worker.
Therefore, some of us may see retirement as an extension of the present.
This is only natural, as we all live in the present, but the future will arrive.
The costs you have to shoulder later in retirement may exceed those at the start of retirement.
You may be retired for 20 or 30 years, therefore it is wise to take a long-term view of things.
Age may catch up to you sooner rather than later
You may stay fit, active, and mentally sharp for decades to come.
However, if you become mentally or physically infirm, you need to find people you can trust to manage your finances.
You could be alone one day
As anyone who has ever lived alone realizes, a single person does not simply live on 50% of a couple’s income.
Keeping up a house can be tough when you are elderly.
Driving can also be a concern.
If your spouse or partner is absent, will someone be available to help you in the future?
These are some of the blind spots that can surprise us in retirement
They may quickly affect our money and quality of life.
However, if you age with an awareness of them, you will be able to manage the outcome better.
Your own pension arrangements play a critical role in your overall retirement strategy.
They will generate a tax-free sum along with an Approved Retirement Fund (ARF) or Annuity giving you a level of income.
Back to blind spots.
Much has been written about the classic financial mistakes that plague start-ups, family businesses, corporations, and charities.
Aside from these blunders, some classic financial missteps plague retirees that don’t get as much coverage.
Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment.
However, whether they result from ignorance or fate, we need to be aware of them as we prepare for and enter retirement.
Government Benefits
The state pension in Ireland is currently payable from age 66 – although it’s only 253.30 per week.
This, however, is subject to ongoing review and furthermore, it’s important that you ensure you qualify for it.
Additionally, check to see if you qualify for additional payment for an adult-dependent.
As well as that, ensure you check to see whether you qualify for the Household Benefits Package and the Fuel Allowance.
Managing medical bills
As we get older our bodies give us more trouble, an unfortunate consequence.
Our medical bills increase, sometimes significantly.
Have you checked to see if you qualify for a medical card?
It’s important to factor in an increase in these costs in your planning.
Underestimating longevity
The prospect of a 20- or 30-year retirement is not unreasonable.
Yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents.
Approved Retirement Fund (ARF) Withdrawal strategies
If you have a defined contribution pension, you’ll likely hold an Approved Retirement Fund (ARF) in retirement.
You may have heard of the “4% rule,” where from age 61 you have to withdraw a minimum 4% of the fund per annum.
Furthermore, you may have heard about the 4% withdrawal rule in the United States.
A guideline stating that you should take out only about 4% of your retirement savings annually.
Some retirees try to abide by it, but others withdraw 7% or 8% per year.
Why is this?
In the first phase of retirement, people tend to live it up.
More free time naturally promotes new ventures and adventures and an inclination to live a bit more lavishly.
If you hold or will hold an ARF, it’s important it’s tailored to you and your lifestyle.
Not some off the shelf solution that suits an insurance company or financial advisor more than it suits you.
Retiring with debts
Some find it harder to preserve (or accumulate) wealth when you are handing portions of it to creditors.
Putting college costs before retirement costs
There is no “financial aid” program for retirement.
There are no “retirement loans.”
Your children have their whole financial lives ahead of them.
Retiring with no investment strategy.
Expect that retirement will have a few surprises.
The absence of a strategy can leave you without guidance when those surprises happen.
So, how much should you save for retirement?
Without a doubt, the harsh truth is that there is no one size fits all solution.
Everyone’s lifestyle is different.
Some require more than others.
However, it’s important for everyone that they are not saving too little nor saving too much.
Save too little, you’ll leave yourself short in retirement.
Save too much, you’re locking money away that could be getting put to better use now.
Get the balance and the best way to get the balance is with your own personal financial plan.
How we help
We can create that plan for you and with you.
At Fortitude Financial Planning we have a philosophy that life is not a rehearsal.
There is no point in putting every last cent into strategies for tomorrow as ultimately tomorrow may not come.
The chances are it will, but it may not.
Therefore, we help you get the balance.
The balance between living your fullest life today, whilst keeping a watchful eye on the road ahead to tomorrow.
Firstly, we’ll look at your current situation.
Secondly, we’ll develop a strategy specific to you.
Putting you in a position to make informed decisions now to plan your financial lives effectively.
Giving you, above all, confidence and reassurance that you are on the correct road.
Are you already in retirement with an Approved Retirement Fund (ARF)?
Are you unsure about your withdrawal strategy?
Particularly in current markets.
How about sequencing risk? Has your existing advisor explained this to you?
Allow us to remove any uncertainty for you.
Review Your ARF
Get in touch
Email us at info@fortitudefp.ie or request a callback.
Alternatively, you can get us on 086 0080 756 or access our diary here and book a call at your convenience.
Why not visit our insights.
A multitude of information on various financial subjects covering all aspects of saving, investing, financial planning, protection and pension advice.
Our blog posts are intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
To discuss engaging the services of Fortitude Financial Planning please email us at info@fortitudefp.ie.
Fortitude Financial Planning Ltd will not be held responsible for any actions taken as a result of reading these blog posts.
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