Did you know that it’s possible that you could live for another 30 years after you retire. How do you ensure that you will live out your golden years without having to worry about your finances?

According to Paula Walker, an advisory partner at Consolidated Wealth, the earlier you start planning for your retirement, the better. “It’s a scary thought for any 22-year-old that their retirement may be almost as long as the number of years that they will be working!” Paula explains. ‘But whether you are just starting out or you are close to retirement, you need to have a plan for what comes next.”

Paula says there are five steps that everyone should take, no matter what their age, to build a solid retirement plan.

  1. Understand your time horizon

Your current age and expected retirement age create the initial groundwork of an effective retirement plan. The longer the time between today and your retirement, the higher the level of risk your portfolio can withstand. If you’re young, you should probably have the majority of your retirement assets in higher risk investments. The older you are, the more your portfolio should start to focus on income and the preservation of capital. Your financial adviser will be able to tailor this plan for you and will review it regularly to ensure you are on track.

  1. The Power of Compounding

Saving is like an acorn – it starts out small but with time, it will turn into an oak tree. You may think that saving a little extra in your 20s won’t mean much, but the power of compounding will make it worth considerably more by the time you need it. If you move jobs, no matter how tempting, reinvest your company pension or provident fund benefit. Your financial adviser will action this for you and incorporate it into your overall retirement plan.

  1. Overlap your Retirement Planning with an Investment Strategy

You should break up your investment planning into multiple components. For example, let’s say you want to retire to Hermanus in 10 years but you also need to pay for your child’s university education. To deliver on these eventualities, you can overlap your retirement plan with an investment strategy. This would be broken up into three periods: 10 years until retirement (contributions are still being made to your plan); saving and paying for university; and living in Hermanus (with regular withdrawals to cover living expenses). Your financial advisor will help you develop a multi-stage retirement plan that will integrate these various time horizons, along with the corresponding liquidity needs.

  1. Balancing the longevity of your retirement portfolio

One of the main factors that governs the longevity of your retirement portfolio is your withdrawal rate. It is critical to have an accurate estimate of your expenses in retirement. Though most people need about 70% of their pre-retirement spend, this is unique to every individual and their circumstances. This planning needs to consider if you are debt free or if you intend splurging on travel or other bucket list goals when you retire. If you understate your expenses, you will likely outlive your portfolio. If you overstate your expenses, you can risk not living the lifestyle you want in retirement. Accurate retirement goals help in the planning process as more spending in the future requires additional savings today. This is where a financial adviser can add considerable value as they will use modelling tools to help develop a realistic and sustainable retirement plan.

  1. Know what you have and what it gets you

It doesn’t matter what stage you are at, everyone needs to know what assets and liabilities they have, how these are likely to change along your financial journey and how each contributes to the achievement of your goals. If you have never taken stock of where you are and what your post-retirement lifestyle currently looks like, its time to meet with a financial advisor who will help you develop a road map for financial success. This will create realistic expectations about your post-retirement lifestyle and your current savings behavior.

Paula says that one of the most challenging aspects of creating a sustainable retirement plan is striking a balance between realistic return expectations and a desired standard of living. “The best solution is to work with a financial adviser to develop a flexible, personalised plan that evolves with your changing life circumstances but remains focused on your retirement objectives,” she concludes.