The worldwide Covid-19 pandemic has cast a spotlight on the risks facing those about to retire or already retired. But no matter the economic environment, preparing for one’s best possible retirement takes careful planning and consideration of the available retirement options as well as the risks of each.
There are three main risks facing retirees:
Outliving your retirement savings
Having your spouse or dependents not taken care of when you die
Your income does not increase as fast as your expenses
To deal with these risks, it is of no use worrying about things you cannot control or influence. One needs to focus on things within your control. To effectively manage these risks, you need to manage your expenses within your budget; choose the best type of annuity for your needs; and get good advice.
Managing your expenses within your budget
What can you do to prepare and take control of your retirement? We believe there are five simple steps that can be followed to make sure you understand your expenses and thus your income needs. You can take control by:
Understanding your situation so that you know where you spend your money and know what resources you have. Make lists.
Reviewing your expenses in detail to find out which expenses can be reduced, delayed or stopped.
Planning. Work out how long you will be able to pay your bills, by calculating your total household income, savings and other possible sources of income. Work out how much you will need going forward each month. Also spend some time thinking about which expenses may increase, for example medical expenses.
Being proactive: Once you understand your financial position, you can start planning for when and how you will reduce, delay or stop any non-essential expenses. Also, consider taking other necessary actions to ensure that your money stretches as far as possible and for as long as possible.
Starting a good habit. Now that you have a budget and a plan, stay on top of your finances by recording your expenses, compare your expenses to your budget every time you spend money and check your plan every month and adjust it if needed. By starting a good habit, you’ll be using this opportunity to put yourself in a better position to achieve what matters most to you.
Choosing the best type of annuity (pension income) for your needs
There are two broad categories of annuity types – a “guaranteed”, or life annuity is the first type, and a “flexible” or living annuity. Each has its benefits and drawbacks, plus a host of options within each broad category. More recently there are hybrid options that combine the best features of each.
In terms of guaranteed pension options, the dec