Why Plan for Retirement?

Before we begin discussing how to plan a successful retirement, we need to understand why we need to take our retirement into our own hands in the first place. This may seem like a trivial question, but you might be surprised to learn that the key components of retirement planning run contrary to popular belief about the best way to save for the future. Further, proper implementation of those key components is essential in guaranteeing a financially secure retirement. This involves looking at each possible source of retirement income.

Uncertainty of Social Security and Pension Benefits

First off, we need to be up front about the prospects of government-sponsored retirement - they're not very good. Greater burdens are being placed on the system, as more and more people retire and, due to advances in health care, are living longer than ever before. This can potentially put strains on the system and could leave governments with no other viable option but to reduce social security benefits or suspend them altogether for all but the poorest of the poor.

Private pension plans aren't usually enough either. Defined-benefit pension plans, which are supposed to guarantee participants a specified monthly pension for the duration of their retirement years, actually do fail every now and again, sometimes requiring increased contributions from plan sponsors, benefit reductions, or both, in order to keep operating.

In addition, many employers who used to offer defined-benefit plans are now shifting to defined-contribution plans because of the increased liability and expenses that are associated with defined-benefit plans, thus increasing the uncertainty of a financially secure retirement for many.

These uncertainties have transferred the financing of retirement from employers and the government to individuals, leaving them with no choice but to take their retirement planning into their own hands.

Unforeseen Medical Expenses

While the failure of a social security system may not occur, planning your retirement on funds you don't control is certainly not the best option. Even with that risk aside, it's important to realize that social security benefits will never provide you with a financially adequate retirement. By definition, social security programs are intended to provide a basic safety net - a bare minimum standard of living for your old age.

Without your own savings to add to the mix, you'll find it difficult, if not impossible, to enjoy much beyond the minimum standard of living social security provides. This situation can quickly become alarming if your health takes a turn for the worse.

Old age typically brings medical problems and increased healthcare expenses. Without your own savings, living out your golden years in comfort while also covering your medical expenses may turn out to be a burden too large to bear - especially if your health (or that of your loved ones) starts to deteriorate. As such, to prevent any unforeseen illness from wiping out your retirement savings, you may want to consider obtaining insurance, such as medical and long-term care insurance (LTC), to finance any health care needs that may arise.

Estate Planning

Switching to a more positive angle, let's consider your family and loved ones for a moment. Part of your retirement savings may help contribute to your children or grandchildren's lives, be it through financing their education, passing on a portion of your savings or simply keeping sentimental assets, such as land or real estate, within the family.

Without a well-planned retirement savings, you may be forced to liquidate your assets in order to cover your expenses during your retirement years. This could prevent you from leaving a financial legacy for your loved ones, or worse, cause you to become a financial burden on your family in your old age.

The Flexibility to Deal With Changes

As we know, life tends to throw us a curve ball every now and then. Unforeseen illnesses, the financial needs of your dependents and the uncertainty of social security and pension systems are but a few of the factors at play.

Regardless of the challenges faced throughout your life, a secure savings will do wonders for helping you cope. Financial hiccups can be smoothed out over the long term, provided that they don't derail your financial plan in the short term, and there is much to be said for the peace of mind that a sizable savings can provide.

Contact me for assistance with life assurance and retirement planning.

Carmin Hitchcox

Financial Adviser

Discovery Group Ltd

Block C, 348 Riviona Blvd, Cnr 10th Edenburg Terraces

e-mail: [email protected]

Website: https://www.discovery.co.za

Read more: Retirement Planning: Why Plan For Retirement? | Investopedia https://www.investopedia.com/university/retirement/retirement1.asp#ixzz4MPXjnKjf 

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