In every person’s life there comes a time when they will face retirement and have to begin the process of retirement planning. In order to explore the area of retirement planning this blog outlines some thought-provoking information, like general attitudes to retirement today, and explores some interesting and simple ways in which you can be better prepared to retire.
How prepared is the current workforce?
Are you for retirement? It seems that for most workers today, retirement is not at the forefront of the agenda.A recent study from global insurance giant Aegon exposed some interesting trends within today’s workforce.
Only one in five current workers say that they are ‘very able’ to understand financial matters related to retirement planning, with as few as 9% of those in employment having a written plan for retirement. Less than two fifths (39%) of today’s employees are unsure if they are on course to achieve their retirement income needs and only 9% of people say their personal retirement planning process is ‘very well developed’.
Retirement in Ireland – Understanding the Contributory Pension
The most important thing to remember about the state pension (contributory) is that it is not means tested, this is something that often causes confusion. The state pension is paid to anyone from the age of 66 who has earned enough Irish social insurance contributions.
As the state pension is not means tested you can prepare yourself by insuring that you have another income in conjunction with your contributory pension. While this pension is taxable, it is unlikely that you will be taxed if it is your only form of income in retirement.
Practical and overlooked steps for planning your retirement
Define your retirement goals:
- You probably have some idea of how you’d like to spend retirement, it is important to write them down.
- Don’t focus on budget. Focus on ideas.
- Be Specific e.g. rather than listing ‘travel’ write ‘hiking trip in Asia’
- Keep a scrapbook or journal depicting how you envision your retirement, the more descriptive you are the more tangible your retirement will be.
List your ‘assets’
- Account for your monthly income, your savings and pension first, but then consider your non-traditional ‘assets’.
- Take the time to list all of your hobbies and skills, your passions are assets.
- Consider if you can morph those skills and hobbies into money-making endeavours.
Evaluate Your Health
- To get the most out of your retirement — and life in general — you want to be as healthy as possible.
- Schedule your check-ups and preventive exams now, from an annual physical to teeth cleaning.
- Commit to eating healthy, exercising and getting enough sleep. Healthy living doesn’t have to be a chore.
- Ensure you are staying mentally sharp with brain games, puzzles and books.
- Consider your mental health – stay in close contact with family and friends. It may help you to avoid any blues that may arise once you are retired.
Track your Finances
- Track your income and expenses for a couple of months.
- Figure out how much money you’ll need in retirement to support your chosen lifestyle.
- Make sure you are diversifying your money into multiple investments
- If you are carrying debt, make sure your budget includes monthly payments to reduce it.
- Once you have a budget you know you can stick to, start putting it into action!
Find New Ways to Cut Your Spending
- Your retirement may be right around the corner or years away but saving more now will always make you better prepared
- List your bills and then figure out ways to trim them
- Pay off your smallest debts first, regardless of interest rate. This gives you a sense of accomplishment and empowers you to go after the bigger debts!
The three rules of creating a retirement budget
Rule 1. Note each of your regular obligations
Your regular contributions can be broken into three overriding sections, monthly essentials, monthly non-essentials, and essential non-monthly payments.
Everything that you will absolutely require during a month, food, clothing, housing payments, transport costs and your health care costs are all included in this section.
Your non-essentials are any monthly obligations you have that you don’t require to live comfortably, the most frequent examples are satellite television services, gym memberships, subscriptions to magazines and other such regular expenses.
Often these are annual payments like insurance premiums, motor tax, home services (e.g. boiler) and other essential payments that happen sporadically and non on a regular basis.
Rule 2. List flexible expenses
Your flexible expenses are things that you will more than likely be pursuing more now that you are retired. They include holidays, hobbies, and the cost of entertainment like attending sporting events or concerts.
Rule 3. Calculate your fixed and your flexible expenses
It is a simple process, calculate the total of all of your expenses. Then add up your fixed expenses separately. Divide your fixed expenses into your total expenses and you will have a clear outlook on how to manage your finances in retirement.
Attitudes toward Retirement
What do you believe your retirement will be like? Attitudes toward retirement are rapidly changing, and it seems that millennials have the least positive outlook when it comes to their own retirement. Two-thirds (64%) of workers believe that future generations will be worse of in retirement than current retirees, and the majority of employees (62%) expect to work longer due to the global financial crisis.
Three in ten employees between the ages of 18 and 24 (the millennial generation) expect that they will have to provide financial support to their aging parents compared to 16% of employees between 35 and 44 (generation X) and only 8% between 55 and 64 (the baby boomers).Two out of three employees expect that their government retirement benefits will be less valuable due to government cutbacks and 44% of employees expect their employer or pension fund will reduce workplace pension benefits.