Crucial steps to take before retiring
Retirement is a process in our lives that evolves over time. For a secure, comfortable, even fun, retirement, keep these key requirements in mind.
Good health insurance is critical in your sunset years while reaping the benefits of your life’s work. However, to enjoy a comfortable retirement lifestyle, the following steps are crucial, too. These will help bolster your portfolio as you approach your planned retirement date.
1. Understand Your Retirement Timeline
According to Elizabeth Nkukuu, a Chartered Financial Analyst (CFA) and Team Lead at Liz Consulting, the power of compounding is rated as one of the world’s wonders. “The more time you have, the more your money will work for you,” she states. If you have a shorter time to retirement, you need to invest more to achieve your goals. Understanding the investment options available to you plays a key role. Consider the amount of money, time and returns you expect as you’re looking at investment options
2. Start Saving and Keep Going
If you haven’t begun saving, start now. The sooner you start, the more time your money will have to grow. Let saving for retirement be a priority. Make a plan – set goals – and stick to it. To maintain the same quality of life as before retirement, you must have a financial cushion. “As we grow older, we need more cash to take care of us in retirement. Our ambitions do not end in retirement, so start saving depending on the goals you want to achieve,” Nkukuu says.
3. Know How Much You Need to Retire
Nkukuu reveals that you need 70 percent to 80 percent of your pre-retirement income to maintain the same quality of life after retirement. So, if you earn KSh100,000 after retirement, your investments should generate at least KSh70,000. However, if you want to lead a better lifestyle, aim to make more than that.
4. Pay All Your Loans
If you have a mortgage, consider accelerating the payments. Reduce existing debt to minimise the retirement income deducted to offset it. However, Nkukuu explains that, at retirement, there is an exception to paying your debts fully if you have a well-structured business that is doing well.
5. Be as Liquid as Possible
In retirement, you need more liquid assets as you have to take care of things, such as health insurance that your employer provided. “Cash required for healthcare in retirement is a lot, so one needs to set that aside during their working years. Depending on family status, you might need more cash into retirement if you have more dependants,” says Nkukuu.
6. Determine Your Retirement Spending Needs
A few things affect your spending needs. Your current situation – if you have multiple dependants, you shall need more cash in retirement than someone with fewer. Your ambitions – if you want to spend time not working, you will need more cash than someone still generating money in retirement. “I have known of people who make more money in retirement than they made during their working years,” Nkukuu shares. Finally, the status of your health and your dependants plays a key role, and whether you have a specific medical scheme in which you have invested.
7. Invest Your Retirement Money
Use formal schemes – join one your employer has set up and increase the contributions through Additional Voluntary Contributions (AVC). If you are self-employed, or your employer does not provide for this, join independent schemes. “You can look at investing in other schemes and work on the independent funds like unit trusts, investing in shares or fixed income. I also recommend investing in self through training and starting a business,” advises Nkukuu.
8. Develop Strong Family Ties
Be close to family members as they will take care of you in your golden years. Don’t spend so much time on your career that you forget to invest in your family. This is one of your most valuable assets. Nurture it.