A Small Step Today Makes a Big Difference Tomorrow

Some of us may not ever retire — What we should be planning for is living longer. How much longer? That’s the question you should be 
asking yourself!

By Dubai Raj

Published: Mon 14 Dec 2009, 11:08 PM

Last updated: Thu 2 Apr 2015, 3:48 AM

Here’s the income needs dilemma in a nutshell: An increase in healthcare costs, inflation, and a longer life expectancy are combining to not only make your income needs higher, but you now have to have that income for much longer. The first step is to acknowledge that uncertainty abounds. We don’t know when we will die. We don’t know the magnitudes of future medical expenses. We don’t know what most investments will return. Living long is a good thing, but it could also bring with it the risk of more illnesses and medical problems.

In 1931, the life expectancy at birth in Britain was just 58 for men and 62 for women. By 1961, despite the damaging effect on the nation’s physical and mental health of six years of war, and even more years of poor diet and inadequate housing, life expectancy had risen to 68 and 74. By 2001, it had risen to around 76 and 81. In the space of seventy years - a single lifetime - the life expectancy of the entire nation had been raised by over 30 per cent.

To add to this, throughout the world, as life expectancy grows and birth rates fall, the number of people working is declining compared to the number of people reliant on the state for their income. The result of such changing demographics is that the worker/retiree ratio is shrinking rapidly – i.e. the number of workers paying into the state system and transferring their wealth to retirees is getting smaller and smaller; while the number of retirees is getting bigger and bigger. The state of pensions is in a crisis.

Your pension will most probably be your major source of income when you retire, so it pays to make the right decision and there’s no time like the present to take action. We tell ourselves that we’ll start later and do just fine when we retire. But who are we kidding? Only ourselves. Ultimately the only person you can rely on to provide for you and your family in retirement is you!

I agree, planning the longest vacation of your life can sometimes be a daunting prospect, when in reality it should be the most exciting plan you have ever made.

How much one wishes to spend in retirement is paramount in establishing one’s capital requirements and once again is interdependent with the aspect of how much you are saving and when you are needing this capital to start working for you. The retirement planning decisions you make today will impact your standard of living in retirement.

Most people have good intentions about saving for retirement. But few know when to start or how much is enough. Research indicates that most individuals will need a retirement income equal to between 70 per cent and 80 per cent of their pre-retirement income in order to maintain their current standard of living during their retirement years. Obviously some costs may no longer apply, for example traveling to work or school fees, while other costs such as medical costs may increase significantly.

Unfortunately, what we seem to have failed to grasp is that, although life may be priceless, it is very far from costless. We have been given almost twenty odd extra years of life expectancy, but none of us has extended our working lives by even a few weeks. We now expect to live twenty odd years longer than our grandparents, but do not expect to work any more than they did - our twenty odd extra years should be ones entirely of leisure.

Well, just who will pay for all that?

If, despite your best efforts, your retirement savings don’t look like they’ll last, there are several options open to you:

· Work longer.

· Work part-time after retirement.

· Adjust your lifestyle to meet your retirement income.

· Move into a smaller home or to a country where the cost of living is less.

As people live into their 70s, 80s and 90s, a large expense in late retirement can be nursing home or home health-care costs. Individuals looking to retire today are faced with the challenge of financing a retirement period that is likely to span 20 to 30 years.

Those who are concerned about the probability of outliving their assets should consider seeking investment solutions that will guarantee retirement income for their lifetime

To build up savings, an endowment or a whole life policy are options you can consider. A whole life policy accumulates a cash value over time. It is designed for long-term savings during which your insurance company will make investments on your behalf. Whole life insurance pays a death benefit so you are assured that your family is protected against financial loss following your death. An annuity is an option you can consider to ensure that you do not outlive your retirement savings. It offers a lifetime of guaranteed income for as long as you live. Besides accounting for daily living expenses, you should bear in mind that large medical bills can wipe out a large portion of your retirement savings. It is additionally very important for you to have appropriate and adequate health insurance nearer retirement.

Today it is possible to buy a variable annuity that will pay an amount each year that will be greater, the better the performance of the associated investment portfolio. It is also possible to buy long-term-care insurance policy that pays a fixed amount each yearwhile the holder is infirm. One can, of course, put some money in one of these policies and the rest in the other. For advice and guidance on the range of products most appropriate to your needs speak to a professional financial planner.


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