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Facing the realities of retirement: How to plan ahead for a secure financial future

March 18, 2010


If you’re like most people, you’re looking forward to retirement. Who doesn’t take pleasure in the prospect of more leisure time and greater freedom? But a successful retirement requires planning. The good news is, with just a few important steps you can be well on your way to the retirement you envision.

Think about when you wish to retire and how you plan to spend your time. Maybe you want to stop working 20 years from now and start travelling the world. Or you may be looking forward in 10 years to spending more time with your grandchildren. Once you’ve determined how much time you have and your goals, you can estimate your retirement income requirements. This amount may be a percentage of what you earn from employment right now, or a dollar amount that you’ll need each month or year. According to many estimates, most of us will need between 50 per cent and 70 per cent of our working-life income to maintain our current lifestyle once we retire. Of course, your personal situation – including how much debt you have when you retire – will determine how much you need.

Match your investments to your objectives and your risk tolerance. The investment options that are suitable for you will depend on how much you need to save and how long you have until retirement. A young investor, for example, generally has greater risk tolerance than an older investor and may choose investments that involve more risk because she has more time to ride out the ups and downs of the market. The closer you are to retirement, the less risk you’ll want to take.

Be realistic in your growth expectations. When planning your personal strategy, remember that your savings can be reduced by inflation and taxes. To achieve any long-term goals, including a secure retirement, your portfolio must generate a rate of return higher than the rate of inflation and the impact of taxes. Your calculations should also address the fact that life expectancy in general is increasing and that you might live a good many years after retirement.

Review your plans regularly. Although you may know now how you plan to reach your retirement goals, even a small change in your personal circumstances could steer you off course. Be sure to evaluate your plan at least once a year – and more often when there are changes in your personal circumstances.