ARM’s Guide to Retirement Planning


What is Retirement Planning?

Retirement can be one of the happiest periods of our lives if we plan for it properly.

We are freed from the burdens of daily work; able to pursue hobbies and interests; to travel; to spend more time with our families and friends. That’s the ideal vision of what some term the “golden years”.

Yet this dream can prove elusive if we don’t plan properly. Far too many people end up living off meagre resources in retirement, trapped in the tension between finally having enough time and not having enough resources.

What are the benefits of Retirement Planning?

The earlier you plan for retirement, the more time your investments have to grow and out-pace inflation, thereby increasing your buying power and wealth in the future.

Inflation is the enemy of happy retirement and many people turn away from facing up to its withering effects. Unless you are really mathematically pin-sharp, you will almost certainly underestimate it’s effect.

For example, 20 years of 15% inflation per annum increases the cost of everything 16 times! What costs 1,000 today could easily cost you approximately 16,000 in retirement.

Suddenly that cosy little nest egg doesn’t look so ample!

The good news is that the longer you invest for your retirement the more compound growth increases the value of your money. Put simply, if you invest 1,000 for a year and earn 10% interest you turn it into 1,100. The next year your 10% interest earns more because it’s now 10% of 1,100 not 1,000. This “snowballing” effect gets bigger and better as time marches on.

What are the key aspects of Retirement Planning?

  • You need to work out at what age you are planning to retire.
  • You then need to work out how much your household expenditure will be in retirement as a percentage of your current household expenditure such as household bills, travel and medical care. Bear in mind that you will have less expenditure because your children will be independent and you may have paid off your loans such as mortgage etc.
  • You also then work out your likely income in retirement from your Retirement Savings Account (RSA) or Employer / Employee Savings/Pension scheme or other investments and assets.
  • You must then determine the effect of inflation on household costs to get a true picture of those costs at retirement age.
  • You compare those future costs with the likely returns on your assets before retirement and after retirement. The latter may be lower because when you retire you tend not to have investments that have high risk (and hence, high return).
  • You can then work out a target for the savings and investments required to meet your needs; determine what the shortfall is (after factoring in expected retirement benefits); and, work out an investment plan to meet the shortfall.

Is it for me?

The temptation is to think that Retirement Planning is for people who are middle-aged or over 40 years.

This assumption is wrong. If you start thinking about your retirement from the age of, say, 25, perhaps even before you marry or have children, the better your retirement will be. However, if you are starting later, you can still benefit from retirement planning, although the benefits are immense when you start early.

How do I start?

We have devised a Retirement Calculator that you can use right now to plan your retirement.

You can also contact an ARM Wealth or Pension Advisor to work with you to develop a plan of action.

Last Update: June 19, 2017  

September 21, 2016   829    Pension, Trustee  
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