Tips to Help You Financially Prepare for Retirement

“If you want to live a happy life, tie it to a goal, not to people or things,” Albert Einstein.

As parents, if you wish to be fulfilled, wealthy and happy in your old age, you should try as much as possible to not make your children your retirement and financial plan. You have to continuously live in such a way that you are an asset and not a liability to your children.?

It is a thing of honour as a parent, that you can earn your own living and pay your own way. Whatever you receive from your children should be a gift and a show of their love, not given out of distress.?

You should not depend solely on your children for survival. It is not unusual to have expectations of your children, but it can also be frustrating for the children.

As parents, or intending parents, how do you ensure you do not become a burden to your children in your old age? The single most important thing you can do is to start saving early. The earlier you start, the more time you have for your investments to multiply.

A good retirement plan will answer the following questions;

• What will be my likely sources of income at retirement? Will I depend solely on my pension? Will that amount cover my expenses after retirement? Do I need to consider expanding my sources of income like; writing books, consulting, rental business or relying on returns from my investments?
• Sizing up expenses: How much do I spend on my monthly expenses now? Will this amount increase or decrease in the future? What will be the impact of inflation on my spending in the future?
• Implementing a good saving and investing strategy: You need to ask yourself how you will structure your investment portfolio. Remember the saying about not putting all your eggs in one basket, that’s how you should think about investments. The secret to a solid investment portfolio is diversification. How much will of your money will go into short term, medium-term and long-term investments?

An investment portfolio is a combination of investments held by a person. Ideally, your portfolio should contain a mix of assets; Low-risk Investments (e.g. High Yield Savings Account, Fixed Income Securities like Bonds, Treasury Bills, Mutual Funds), Medium-risk Investments (e.g. Real Estate Investment Funds (REITs) and Exchange Traded Funds (ETFs) and High-risk Investments (e.g. Stocks, Crypto). Note that some ETFs are also high risk. Diversifying your portfolio will help you minimize your risk and achieve medium to high returns.

• Managing assets and risks: Another crucial aspect of personal finances will be to take care of risks – life and health risks. Get adequate life insurance coverage preferably through a term insurance plan and also buy health insurance coverage for all family members.

You can choose to go through a form of Systematic Investment Plan (SIP) which is a plan that allows investors to make regular, equal payments into a mutual fund, trading account, or retirement account, i.e. a mode of investing in equity funds where you keep adding money as and when there is a dip in the stock market.?

Or you can adopt the Dollar-Cost Averaging approach. Instead of investing in a security all at once, dollar-cost averaging is the process of investing a fixed amount at regular intervals over a long period of time. It is an investment strategy that can help you pay less for investments and better manage risk.

Over the long term, the markets drift upwards and you start earning rewards from equities. Keep reviewing the performance of your portfolio and start reducing your risk exposure when you are 3-5 years away from your goals. When you are close to your goals, shift funds from equities to less volatile funds (low to medium-term risk investments) like mutual funds, bonds and treasury bills.

In order to draw up a portfolio that is well suited for you, you would need to consult a financial advisor. Please make sure not to fall victim to Ponzi schemes or scams while trying to invest your money.

Finally, if you have parents, I want to encourage you to have a drawn-out plan for your parents in their old age, to avoid being overwhelmed. In fact, for most religions, serving your parents in your old age is as good as opening the door of paradise. Learn to give back to your parents out of love, but not out of distress, and it must be prepared towards and not become an overwhelming emergency.