It's every working person's dream: saying goodbye to the daily grind while you still have your own teeth. In our retirement fantasies, we're traveling the world, healthy and in the prime of our lives, visiting those hard-to-pronounce countries we've always talked about and sampling the finest local fare.
One problem with saving up for retirement is that we tend not to think beyond those first few glorious years of good health and full checking accounts - we don't do the long-term math. And don't forget that life can get tricky during those last 5 or 10 years. Very few fortunate souls drift away in their sleep at age 88 without ever having major surgeries, hospitalizations or chronic (and expensive) conditions to manage -- not to mention the ever-increasing costs of medical insurance and prescription drugs.
While we tend to overestimate our health, we underestimate our post-retirement financial needs.
How much money do you need to retire?
Not surprisingly, the answer to this question depends very much on you, your budget and your lifestyle goals. If you plan to live quietly, the answer is not much. If you plan to go overseas every year, the answer is – a lot! However, there is a very simple rule of thumb that can help you answer the question:
First, pick the amount (in today's rands) that you want to live on each year in retirement. Then multiply that by a factor of 20. This will give you a rough guide as to how much money you need to have saved by retirement to achieve that annual income.
People who plan fully for their retirement are not only better prepared financially, but feel more positive about taking this next life step. Your retirement fund is only the first financial step along the way to retirement; you also need to take into account investment and taxation. At this stage, work out what your retirement goals are, assemble your financial documents, and then decide if you need the help of a financial planner. With sound advice behind you, you have a better chance of living your chosen lifestyle in retirement.
Herewith a helpful checklist for pre-retirement preparations:
- have you decided your retirement date?
- is your life insurance up to date?
- do you have a lifestyle plan?
- do you have a budget?
- do you have a financial plan?
- do you know how much money you need to fund your retirement?
- do you have an updated will?
Furthermore, did you ever think that you might be bored without a day job? Do you have enough hobbies and interests to sustain you for 20 to 30 years without business trips, deadlines and daily meetings? But don't get discouraged. If you're serious about retiring and dedicated to making it work, you can make it happen. All it takes is some dedicated financial planning, a strict budget and some good old-fashioned luck.