Making your nest egg last a lifetime

Julius Olayo

As you approach retirement age, financial experts say you should invest in Treasury bonds to protect your savings.

But retirement can last a few decades, so it pays to maintain a portfolio of stocks, possibly between 40 per cent and 50 per cent of your investment portfolio, while you’re in your 70s, and up to 30 per cent when you’re in your 80s.

One rule of thumb is that you’ll need 70 per cent of your pre-retirement annual salary to live comfortably. That might be enough if you’ve paid off your mortgage and are in excellent health when you kiss the office good-bye.

But if you plan to build your dream house, trot around the globe or get that PhD degree you’ve always wanted, you may need 100 per cent of your annual income or more.

It’s important to make realistic estimates about what kind of expenses you will have in retirement. Be honest about how you want to live in retirement and how much it will cost. These estimates are important when figuring out how much you need to save for a good retirement.

Current expenses

One way to begin estimating your retirement expenses is to take a look at your current expenses in various categories, and then estimate how they will change. For example, your mortgage might be paid off by then and you won’t have commuting costs. Then again, your medical costs are likely to rise.

It’s advisable to save as much as one can while in employment.

Financial planners recommend that employees save 10 per cent to 15 per cent of their total income monthly for retirement, starting from their 20s if possible.

But this is just a general guideline. It’s wise to establish a savings target; one that tells you roughly how much you should set aside over time to meet your retirement goals. Be sure to update the calculation each year so that you can see if you’re on track.

Try to divert as much of your earnings into savings as you can.

If you don’t have a budget, create one. If you have one , revise it to reflect your commitment to saving. Chip away from wasteful habits — this might mean ditching expensive dinners or unused gym memberships.

If you’re still young and you can’t save enough, don’t be discouraged. Your income will probably grow as you progress in your career allowing you to save more.

You might also have other opportunities to boost your savings rate, for example, a bonus or inheritance that will make a big difference in your long-term prospects.

Trying to figure out whether you can afford to retire is like putting together pieces of a financial jigsaw puzzle.

First, you need to estimate how much you’ll spend in retirement. Then you must consider the income you’ll collect in retirement from pensions and social security schemes as well as the amount you can afford to draw from your personal savings or other sources.

For soft landing during retirement, assemble the various pieces, and then see whether the retirement picture that emerges is acceptable to you. Work out your budget, track down any savings you’ve had over the years, and see what else you can do to make your money go further. Find out what benefits you may be able to claim. They may top up your income, or help you with specific costs, such as travel.

The amount of tax you pay changes when you retire, so make sure you’re not paying more than you need to. Find out how you can reclaim any overpaid tax.

Your funeral

You may want to think about making a will or making sure your existing will is up to date. You may also want to consider arranging and paying for your funeral now, and legally choosing who’ll act on your behalf if you stop being capable yourself.

It’s usually a good idea to think about insurance to provide for your partner on your death or for you if your health fails. Some insurance companies offer special rates to people over 50 or 60 years old.

Find out how to handle the financial affairs of a deceased partner, and check how this may change your money situation.

Retiring on a lower income may mean your money becomes stretched. Budgeting helps you see how much money you have coming in and how much is going out.

Once you’ve worked out your budget, think about what else you want to do (for example saving for a rainy day or making improvements to your home).

Doing a financial health check regularly can help you decide what you need to do first.

If you rely on investments from income, remember that the level of income you get may vary and that the value of the investment can also go up and down.

If you are looking to buy a new investment to get a higher income, make sure you understand the risks of the new product before investing.

Be wary if you see an investment promising a high return at little or no risk. Fraudsters can appear genuine and can be very convincing but if an offer looks too good to be true, it probably is. Find out how to protect yourself and think about getting some professional advice.

If you’re a homeowner, you may be thinking about equity release, which allows you to convert some of the value of your home into either a lump sum or monthly income.

Equity release schemes can be helpful but they are not suitable for everyone. You should always consider taking professional advice before making any commitment.