Financial Planning Retirement Tips

Financial Planning for Retirement

When you are young, it is highly unlikely to think about planning for your retirement. All of your efforts, time, and money are spent on starting a career, business or family, traveling the world, and settling in new places. But time flies so fast and before you know it, you are well into your 40s or 50s and have only started to think of your plans. So now you ask yourself, is planning for retirement in your 20s the best way to start? Can you start in your 30s or 40s? Will you have enough to live by if you start only in your 50s? When is the right time to start financial planning for retirement?

Importance of Financial Planning for Retirement

Retirement is something that is quite easy to put away and worry about later especially when you are busy with paying the bills, taking care of the kids, work or business. After all, retirement means leaving one’s job and ceasing to work. Here are three reasons for you get started in thinking of your retirement plan now:

  1. People live longer today. According to WHO’s Global Health Statistics, Global average life expectancy increased by 5.5 years since the turn of the century. For example, a person born in 1960 is expected to live up to 52 years of age. Today, however, the average is 72 years. With the advances in technology, medicine and easy access to food, people today are expected to live longer than their parents.
  2. People cannot work until they die. You love your profession and you do not see it as a job but as people paying you to do what you enjoy the most. But the reality is, you cannot always perform at an optimum level. As you grow older, day-to-day physical and mental tasks will become more challenging and you start to slow down. Regardless of your passion for your job, there is no such thing as “work-until-I-drop” plan.
  3. Relying only on your pension is not a good idea. The key point here is to be self-sufficient which means that you do not depend entirely in an organization, company or government for your retirement. Pension or super (short for superannuation) funds are not immune to failures. Poor fund management, falling industry performance, economic downturns and shifting demographics (retirees living longer) are some instances that will adversely affect your pension.

5 Tips on How to Approach Financial Planning for Retirement

Here are 5 financial planning retirement tips that you can use as a reference for your retirement financial plan:

1) Real Estate planning.

This involves deciding on how you want your assets to be distributed when you are unable to make financial decisions or after you die. When you are in your 20s or 30s, this may not seem relevant but estate planning is a good tool to protect yourself and your family for those unexpected events in life. At a minimum, your estate plan should include a power of attorney, a will and, if you have children, a trust. A power of attorney helps your family members manage your personal business such as selling a property and paying your bills. A will can name a guardian for your children and a trust will help them with living expenses as they grow and reach adulthood. Then when you are in your 40s, you need to update your plan because of some changes, such as: at this time you may have accumulated more wealth and your wish or choice to be your children’s guardian through the power of attorney, may have changed. When you reach the 50s or 60s, you may have to consider a more comprehensive estate planning like how your estate will be divided among your beneficiaries.

2) Start budgeting and be a smart spender.

The best tip to saving money is to spend less than you earn. And to do this, you need to learn how to control your spending. You can choose to make your own meal rather than eating out, cut back on your entertainment expenses and save up on petrol by carpooling. The money you will save will allow you to invest more.

If you think that your expenses when you retire will be different, think again. When you retire you still have expenses like housing, utilities, food, clothing, transportation, healthcare, and even entertainment. Depending on your lifestyle, a few will be lower such transportation as you do not have to go to work. Healthcare is likely to go up as you get older and need long term care.

In this modern digital age, consider going paperless which means no more billing statements or receipts to keep. But that does not mean you cannot keep track of your spending. You can create your own excel spreadsheet or look for excel spreadsheet templates for tracking your budget and expenses. If you’re looking for financial model templates to help you with money management, investments, loan payment schedule, personal budget, and other personal financings, feel free to check our templates here: Personal Finance Templates.

3) Lay out your goals and prioritize it.

By now you have an idea of your spending habits, how much money you can save, and kind of lifestyle you have. Now imagine what kind of life you wish to have when you stop working. Do you want to travel? If you like to go fishing, do you want to buy a boat? Or will you buy a sports car you always wanted? Remember, in creating your financial goals the most important thing to know is how much is needed for you to live comfortably when you no longer have a job. It is recommended that you base your retirement goals on how much you spend rather than your current income. This is particularly helpful if you are in your 20s or 30s since you are in the early stages of your career. But how much exactly do you need when you retire? A rule of thumb is to multiply your expected spending by 25. The result is the size of your retirement investment portfolio where you can safely take out 4% annually to live on.

4) Invest what you save and create your retirement investment portfolio.

Depending on your appetite for risk, there are many ways to invest. You can invest in stocks, bonds or a combination of both, mutual funds, ETFs, annuities, retirement accounts, real estate, and REITS. If you are starting to invest in your 20s, you have a long investment horizon and can tolerate an aggressive portfolio composed of risky assets such as stocks, commodities, and FX. You can put as much as 100% of your investments in stocks. Then you can lower this to 80% when you are in your 30s and put the rest in bonds, cash or other suitable investments for as long as you are still on track of your financial goals. Now, if you start in your 40s, planning your retirement should be a priority and your investments will be more conservative. Your investment in bonds will higher and investment in stocks or risky assets will go down as your appetite for risk lowers. By this time you have a more stable career and if your company offers stock options, always read the fine print and get the most value from it.

If you are starting at a later age, don’t despair. There are three things that are in your favor. One, your income is relatively higher when you were younger. You can save 15% to 35 from your income and you still have promotions or salary increases to depend on. Second, your children now have their own careers and live on their own. This frees up the money you spend supporting them to your retirement savings. Lastly, it is easier than you think to save a decent amount of money in 10 or 15 years. The main thing to keep in mind is to compensate for starting late by aggressively setting aside for your retirement. Save more and harder so to speak. Focus on what can boost your income or lower your expenses or at best a combination of both.

One sure thing you can invest now at zero cost that will pay off in the future is your health. You can reduce your health care costs just by living a balanced life. Numerous studies show that exercising and eating healthy food has a significant positive effect on your health and well-being.  It is also wise to go into retirement debt-free, pay off your mortgage and if you have any bad debt, especially credit card debt, it is best to pay it off as early as possible. This is one expense you definitely do not need when you retire.

At which point in your working life you start investing for your retirement needs, it is important to know how inflation and your investment horizon affects the rate of return on your investments. Historically, the inflation rate in the US fluctuates around 1.5% to 4% per year. If you get a 10% return on your investments, the inflation-adjusted return will be roughly around 7%. If you are getting less than the inflation rate, you are losing money. There are a lot of uncertainties in the stock market. It has its ups and downs. A bull or bear market can last for years. But when you have a longer investment horizon, the more time you have to recuperate or overcome its downs and the longer you can take advantage of its ups.

5) Understand compounding interest and dividends.

Albert Einstein, history’s most famous physicist, once described compounding interest as the “eighth wonder of the world”. Warren Buffet, one of the greatest investors of our time from the USA, believed the single most powerful factor on his success in investing is compound interest. Why do these brilliant minds have such reverence for compounding? First, one of the most valuable thing to have in your 20s is time.  You have more time to double, triple and even quadruple your money. Remember, it is much easier to grow money over 50 years than over 15, 20 or 25 years. For example, say you have already set your eye on a retirement goal and you committed to putting $5,000 every year in a retirement account until you reach 65 and earns 5% return. If you start saving at 45, you will have about $173k when you are 65. Starting at 35, you will have about $348k. Starting at 25, you will have about $634k in your retirement account.


These financial planning retirement tips are, of course, not that easy to follow without the help of a financial advisor or someone with know-how when it comes to financing. But with the tools available provided by today’s technology, you can simply take advantage of such tools to help manage your finances.

The retirement age of most countries worldwide is 65. In Spain, Germany, and France, the retirement age is around 65-67, while in Japan, they often retire around 60-63. On the other hand, in Australia, some even get to retire very early around their 55-57. Depending on your financial circumstances, planning for your retirement doesn’t necessarily ensure financial freedom as you retire but more of a case where you have enough funds to move around when you’re not able to generate income from working anymore. Therefore, passive income generators such as investing and stock exchange are very popular sources for those wanting to secure their retirement plan.

The earlier you join into the fray, the higher your returns will be. But of course, this includes risks that you have to anticipate better with a tool to help you conduct a projection such as a financial model for retirement planning with Dividend or Income Generating Assets. Feel free to download the templates below to get a copy of these tools to help you calculate if your income generating assets are enough to cover up your living expenses on retirement.


The best time to start Retirement Planning is Now!

Whatever your age may be, the best time to plan about your retirement is NOW. Retirement is understanding the income and assets you might need to support your lifestyle and live financially independent. If you have been delaying your retirement plan, it is not too late to start setting your goals before you are out of the workforce.  Remember, you do not have to be an expert to start building a financial plan. There are a lot of helpful tools available online, from retirement calculators, retirement plan templates, to financial models for your personal budgets. If you are uncertain and confused about how to go about it, a financial advisor can help make sense of these tasks. He/she can examine your current financial situation and help you make a plan to ensure that you make informed decisions to achieve your goals. People’s needs, priorities, and lives are unique and different so your retirement plan must be suited for you. Do not worry if your retirement plan is not the same as others because there is no cookie-cutter approach. After all, how we live our lives and plan our retirement is totally up to us.