What Is Retirement?

For most people, we've all heard of the term "retirement." It represents an inevitable stage of life we will eventually step into. To put it simply, someone enters retirement when they choose to permanently leave the workforce. This means no more job hunting, no more waiting anxiously for acceptance calls, no more 9-to-5s, and no more early, break-of-dawn meetings.

While you may normally associate retirement with a certain age, usually in one's 60s, retirement these days is perceived more as a financial and lifestyle decision than an age-centered one. Early age retirements are being normalized, and it's a great thing.

Why People Choose To Retire

When you're ready for retirement, you will have entered a phase where your career leaves your priority list. It marks the beginning of a new chapter where you prioritize rest, family life, hobbies, and/or personal projects.

You may want to get off the merry-go-round of the office/professional lifestyle and put more time and effort into being a stay-at-home parent, or you may want to move back to your hometown and look after your aging parents. You may finally feel ready to embark on that lifelong adventure you've always had on your bucket list, and a full-time office job is getting in the way.

Financial Readiness: Can You Afford To Retire?

We know what you're thinking: "Am I ready to retire?" and let's be honest, you're probably thinking that every morning you hit snooze on your phone, considering jeopardizing your entire career for five more minutes of sleep,

But, are you? You need to ask yourself several questions before you consider a drastic step such as retirement. Let's look at some of those,

• Do I have enough savings to stop working?
• Do I still have any loans or debts to clear?
• Where will my money come from after I retire?
• Have I thought about how rising prices will affect my savings?
• Can my savings last if I live longer than expected?

How ready you are financially to retire determines how much you'll be able to enjoy your retirement. When you call it quits, for good, you'll be relying on savings, pensions, or investments. You won't expect a weekly/monthly paycheck, and you certainly are done with raises.

This is why the questions posed above are critical when planning your retirement and ensuring you have enough resources to enjoy it without worries. If you're not prepared financially, your retirement can bring more harm than good, leading to stress, emotional challenges, dependence on others, and more difficulties.

So, if you're considering retirement, ask yourself if you can afford to take the step. Take stock of your income, investments, pension opportunities, and savings. Consider rising costs of essentials and additional expenses (which we'll cover later in the blog). You need to ensure that the end of your career marks the start of a rewarding life.

How Much Should You Save For Your Retirement?

Regarding retirement savings, there is no set figure or exact amount. It isn't a one-size-fits-all number because it depends on where the retiree lives, their lifestyle, personal goals, and plans. Many expert-suggested figures account for a comfortable living standard long after you stop getting the "salary deposited" text.

According to the renowned financial advisory firm, T. Rowe Price, there are three key benchmarks potential retirees must aim for to stay on track. Let's look at them below,

Save one to one-and-a-half times current salary for retirement by age 35.

You're earning $50,000 now; you should have saved $50-75,000 by now.

Three-and-a-half to five-and-a-half times by the age of 50.

With the same salary, you should have $175-275,000 in retirement savings at 50.

Retirement savings goal may be six to 11 times by age 60.

When you've reached 60, you would want about 7.5 x to 13.5 x your final working salary. If that's still $50,000 annually, that will be $375,000 to $675,000.

How Can You Use The Benchmarks Wisely?

While these benchmarks can be helpful, they won't obviously apply to everyone. Here's how to use them wisely to ensure smooth retirement plans.

Adjust for living costs: If you're living somewhere with high living or medical expenses, you'll want to save more, understandably. A more modest lifestyle will require you to save less for retirement.

Starting early makes things much easier: Saving from your 20s or 30s gives your money more time to grow. You'll need to save more of your income if you start late. You can start with 6% of your current income and increase gradually.

Other Income Sources: Employer pensions, government benefits, or rent can help contribute to your retirement and reduce personal savings.

Inflation Matters: One thing you can be sure of is that prices will rise over time. And if your money doesn't grow faster than inflation, it will lose value. When you make the right investments, you help your money grow and protect it.

Healthcare and Taxes: Medical costs and taxes consume a significant amount of your income when you're retired, so make sure these are part of your calculations.

Catch-Up Savings: Even if you're behind (which is normal), you can catch up with your savings in your 40s or 50s. Many retirement plans allow you to contribute after a certain age.

Impact of Inflation on Retirement Savings

If there are two very real things today, they are global warming and inflation. With inflation going out of control yearly, the purchasing power of every cent you save erodes just as uncontrollably. What does that mean?

The money you put away today won't go as far years from now. Let's break down how inflation truly affects your retirement plan and savings,

If you have a fixed amount in savings, it loses value as the costs of resources increase. What you're buying groceries with today is chump change in the next 10-15 years.

Everyday costs like food, utilities, household, and especially healthcare often increase faster than general inflation. Medical expenses can proliferate during retirement as the need for care rises.

If most of your income comes from pensions or savings with fixed payments, rising prices can reduce how much you can spend each year.

With life expectancy on the rise (which is a good thing), retirees must plan longer. But the longer you stay retired, the more damage inflation can have on your savings, especially if your portfolio is weak.

Adjusting Your Plan For Inflation

If you want to protect your retirement savings, saving is not enough. You need to work smarter, not harder. Check out the strategies below to reduce the risk of inflation,

The best option is to invest in assets that are resistant to inflation. It's like real estate, stocks, or TIPS (Treasury Inflation Protected Securities, or their equivalents in your country).

Build a margin for inflation when calculating how much you'll need for retirement. For example, if you estimate you'll need $50,000 per year today, plan for that number to grow 2-4% every year in the future, while maintaining the same living standard.

While being confident of your calculations is excellent, please don't assume they will remain accurate. Revisit your projections every few years, if not annually, and adjust accordingly.

With multiple income streams, you make a better bet at being comfortably afloat while you're retired. It makes you less dependent on one source that may lose value over time.

If you can, delay retirement. The more years you work, the more time you have to make and save more, the fewer years you spend drawing on them. You also have a chance to make more investments.

Are There Alternative Sources of Retirement Funds?

Yes! Besides the standard pension and investment routes, there are other potent sources of retirement funds. Many people continue their part-time jobs or start freelancing, while others receive rent, dividend-paying stocks, or small businesses that bring in passive income.

In addition to the usual, creative options like writing, making crafts or teaching online have become increasingly viable sources for financing a retirement fund and giving the retiree’s time a sense of purpose.

Conclusion

And there you have it! We've spilled the details on retirement, its planning, and how to ensure your savings work just as hard as you have in your career. Begin early, review your plan regularly, and focus on what kind of life you want after you leave work. With the right approach and an open mindset, your retirement can bring you some of the most rewarding moments of your life, making all those years of hard work worth it.