FINE-TUNING YOUR RETIREMENT PLANS

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FINE-TUNING YOUR RETIREMENT PLANS

Quote of the Week:

“Goals are dreams we convert to plans and take action to fulfil.” Zig Zigler.
child's financial future

Old age financial independence is the ultimate goal of retirement planning. Age notwithstanding, the process of ensuring that you have sufficient funds to maintain a desired standard of living through your "golden years" is worth considering. Naturally, depending on an individual's stage in life, the planning process will be different and dependent on one's unique circumstances. Basic guidelines exist to assist people in creating their retirement plans, and form the foundation of an individual’s retirement investment strategy.

1. Time to retirement and projected inflation.
The difference between your current age and expected retirement age create the initial groundwork of planning a retirement strategy. Firstly, the longer the time period between today and retirement, the higher the level of risk that one's retirement savings can withstand, because negative effects of risk on your returns are reduced with a long term period of investment. Individual personal pension plans, like Zimele’s, form a good reference point. A pension plan can be broadly defined as an investment vehicle for an individual to build savings during their years of employment or active working years, for use as a source of income at their time of retirement.
Because of the pooling of funds concept, diversification is achieved for every individual investor regardless of the amount of money invested. For a young investor with a long term period of investment, the best way to save for their retirement would be by investing in a personal pension plan with an
equities element (shares traded at the stock exchange) in it. This gives the investment a chance to grow and yield returns that overcome the eroding effects of inflation on money.
Secondly, stretched periods of retirement savings accumulation must factor in inflation. A 64-year old who is planning on retiring next year does not have the same concerns regarding inflation as a much younger professional who has just joined the workforce.
Finally, and most importantly, a longer time horizon breaks up the overall retirement plan into multiple components. For example, an individual may wish to start and grow a business that will provide a long standing stream of income well into their retirement years. In addition to that, he may also wish to
have the peace of mind of having a steady stream of investment income, also known as passive income, which does not rely on his personal effort or business cycles. In this case, the individual must have a plan for his retirement that incorporates growing his business, saving into a personal pension
plan to provide a source of passive income.

Whichever direction that this investment decision would take, a common ground must be recognized: that one must consider all of these three things at a go-

(i) various time horizons,
(ii) corresponding income needs and
(iii) risk appetite-so as to determine the optimal way to save for their retirement.

2. Spending Requirements
Having realistic expectations about post-retirement spending will define the required size of the retirement savings, or the aggressiveness with which to approach building a business that will sustain you and your family in retirement. Accurate retirement spending goals help in the planning process as more spending in the future requires additional savings today. Consider your lifestyle, health care requ irements, what you intend to do with your new-found free time. Tracking spending can be difficult. But if you can get a rough idea of how much you spend now, for instance by using a personal expenses diary and put a cap on it every month, you will be very thankful in retirement. Another benefit of setting a limit and thinking about where you are spending money regularly is that it reduces the likelihood of lifestyle inflation.

Conclusions
One of the most challenging aspects of creating a comprehensive retirement plan lies in striking a balance between realistic return expectations and a desired standard of living. The best solution for this task would be to focus on creating a flexible portfolio which can be updated regularly to reflect changing market conditions and retirement objectives.
A retirement investment strategy is not necessarily about maximizing returns while ignoring risk. Most often the appropriate strategy is the one that will maximize the probability of a successful outcome. That requires considering both risk and return, whether it is through a business empire or a financial
investment in individual personal pension plans. However, regardless of whether you intend to have a business empire to cater for you retirement put some money away in an individual pension plan.

You can send your comments or questions to This e-mail address is being protected from spambots. You need JavaScript enabled to view it , or visit our offices at Ecobank towers, 7th floor, Muindi Mbingu street. You can also follow us on our facebook page- Zimele Asset Management ( Kenya)