Retire With a Plan!

plan to save

Retirement can be nightmare for some while a cakewalk for many others! Retiring from the workforce is a major life change, especially if you have been working full-time, but it doesn’t need to be an all or nothing scenario.

In your retirement, you need to have savings to generate a passive replacement income. For those who withdraw their 401K, usually end up spending it all within five years while their retirement might go on for 20-25 years. Pension and a 401K will only take you so far and with the average lifespan estimated at 75 years, many will have to rely on family, friends and charity in the last years of their life. It is necessary that you have multiple sources of income to cover yourself, because in retirement, you will need more income as you are no longer productive. So, one needs to have an income to sustain the basic needs, wants, as well as the rising medical costs.

Originally, life insurance expired at the age of 60, then it became 70. Today, people are covered till the age of 100. So, basically people are covered for life. You can buy a policy where you pay very minimally for the premium while still employed because many employers have group insurance coverage for all employees, so they wouldn’t need much cover then. But, when you retire, the coverage then drops down to the first level. So, in post-retirement you continue to have this insurance coverage that you bought yourself which didn’t cost much initially and you continue to be covered until the day you die.

There could be a few potential income sources you could consider in retirement:

  • Part time employment: Working part-time means you are still earning an income which means you won’t need to draw as much from your other savings, if at all, so it will continue to grow. People plan when they want to retire but many forget to plan what they will do in retirement. Working part-time gives you a chance to develop interests and hobbies outside of work. Also, if you are not yet eligible for the Age pension, working part-time allows you to semi-retire but still have some income. For many people, working part-time is also a way of keeping their mind active. Work gives our lives structure and purpose and allows us to identify with and interact with others.
  • Age Pension: Your retirement income may include some kind of pension payment or allowance from the government. There are many people who rely on a government pension or allowance as their main source of personal income at retirement.
  • Selling/Renting family home: By the time you are considering retirement, it is likely that you will have substantial equity in your home. Selling the family home is one way to free up cash for retirement. The money you receive can be invested in shares, term deposits, managed funds or superannuation. This can be a tough decision to make on emotional front. Another alternative to this could be renting a room or part of your house. This will allow you to keep your home as well as keep the cash flow incoming.
  • Home Equity Release: If you are over 60, own your home and need some extra cash, using the equity in your home is one option available to you. However, using your home equity is a big step. Your home is probably your most valuable asset so you must work out whether the benefits outweigh the risks. Always seek financial advice before you make a decision. Even though home equity release might be suitable to people in some circumstances, keep in mind that it is a long-term commitment and you need to know all the risks. Equity release products should not be entered into lightly. Consider your future needs and speak to your family and obtain financial and legal advice before proceeding.

These income sources can be combined so your money lasts longer and you have a more comfortable retirement. It’s worth remembering that one income source can have an impact on another. For example, if you decide to sell the family home, your age pension may be reduced or cut off. There are many uncertainties that even the best calculations can’t predict, including a change to tax laws, market crises, unexpected illness or a move to a new home. Set aside some money for emergencies and unexpected events when considering what combination of income sources will be most suitable for your needs.

Make sure you know in and out about your income options before jumping to any decision. Your retirement can be much more enjoyable if you chalk out a flexible plan that uses a combination of income sources. Secure your future by planning systematically, as they say, “If you fail to plan, you plan to fail”.

About The Author

Thomas

A husband, father, brother, uncle and cousin to a great group. I'm an budding entrepreneur that has interest in making money that will sustain deep into retirement. At this point in my life I see no reason why I shouldn't get my piece of the pie.