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Life Cycle Retirement Planning

Do you feel that you're too young to be thinking about retirement? Think again. Today's new pension freedoms provide more flexibility when it comes to deciding when and how to retire. But to get there in good financial shape, you’re going to have to do some planning…

Setting aside a monthly budget for retirement savings should be a priority at any age. Your own budget is uniquely dependent on your personal situation and on how you balance your finances. What really counts is what you choose to do with the extra amount that you may be able to spare every month. 

Throughout the different stages of your life, you will face unique challenges that require different retirement planning strategies. Three important factors around planning for retirement are: the time left until the age at which you would like to retire; how much risk you are willing to take when making your investment choices, and how much you can set aside towards retirement.

Your 20s & 30s

For many people this is the age of financial freedom. It's the time when you step onto a career path and experience the power that comes with real earning (and spending) potential. At this stage, retirement will probably feel a long way off. But here’s the thing - the sooner you start saving for it, the smaller the impact on your day-to-day spending power over time. 

Making regular, relatively small contributions towards a pension pot from a young age is much easier than trying to cram it all in when you get older. You're likely to save money in the long run, and your future self can feel quietly satisfied that you were smart enough to get ahead of the game. 

Stepping in your 30s is all about building on what you've started. And if you haven't started yet, now is the time to do it. Hopefully you’ll be in the happy position of earning more because your salary has increased in line with your experience. Keep an eye on your outgoings; such as rent or mortgage expenses, as well as spending on other interests. Make sure they’re not taking a bigger bite out of your income than they need to.

What could I be doing?

  • calculate your monthly budget so you know what money you can afford to save

  • set up a savings or investing pot - you can start small and add more later but the sooner you start, the better. If available, ensure you enrol in your company's employee pension scheme to make the most of any matching contributions that come from your employer and also benefit from pension scheme government rebates

Tip: watch your wallet and try to strike a healthy spend-save balance.

Your 40s

This is an age of maximised earning and spending potential. All being well, you could be at the peak of your career, or supercharging it by starting your own business or stepping out in an entirely new direction.

On the other hand, if you're not where you want to be, it’s not too late. But now is definitely the time to get serious about how you manage your money.

This is also often a pivotal time in your personal life, as your family starts to grow up and away. Your future self would definitely thank you for taking stock and updating your financial plan.

What could I be doing?

  • request a financial planning meeting with an accredited advisor to see if you’re on track, and work out how much extra you should be putting away every month

  • as you repay instalments for major expenses such as car and home ownership, try not to lose sight of long-term goals such as investing for your children’s future and planning for a comfortable retirement

  • take a steady approach to building your retirement pot, setting aside regular amounts of money. Freeing up a large sum of money at year-end is often difficult, so breaking down your investments into affordable monthly contributions will help

Tip: Your earning potential may be reaching a peak. Now is the time to put as much money into retirement savings as you can afford.

Your 50s

The 50s is when those previously distant retirement goals start coming into plain sight. If you have children, they may now be adults themselves, meaning that looking after their financial welfare can hopefully become a lower proportion of your regular spending. This is catch-up time, an opportunity to turn the focus onto boosting your personal savings. 

Whatever you do, don't be tempted to start coasting now, because your chances to put money aside may begin to narrow as retirement nears. Your future self would certainly be more comfortable knowing there was something in place to protect the pension pot you’re still working so hard for. 

What could I be doing?

  • make sure your pension pot is in good shape, and if either you or your partner has taken time out, consider topping up any gaps in your state pension contributions

  • reassess your long-term goals and focus on planning

  • watch your retirement portfolio and revisit your asset allocation to ensure that these are in line with your appetite towards risk

Tip: inject some extra contributions into your savings plan, address any gaps in your retirement plan and consider switching to a lower-risk investment strategy to consolidate your earnings to date.

Your 60s

Your 60s is absolutely not an age where one life stops, and another begins. It's a gradual transition, and one that you should be in total control of. So if you don't feel emotionally or financially ready to stop working, you don’t have to. 

However, if you plan well, retirement can be a time of freedom and adventure where you can put your life goals into action. 

Your future self may still not be ready to press the 'go slow' button, so this is still a time to think longer-term and to plan for a long, happy retirement.

What could I be doing?

  • calculate whether your means meet your expectations by drawing up a budget - set out your household outgoings as well as more desirable expenses (such as holidays and hobbies)

  • feel free to keep on working - even part-time or casual hours - if it means you'll get the lifestyle you seek in retirement

  • unexpected costs arise at all stages of life, set up an emergency fund to cover any unplanned bills

Tip: This is the critical phase. Keep your finger firmly on the financial pulse and a comfortable retirement could be yours for the taking. 

Throughout the life cycle of retirement planning, don't get discouraged if you undergo any unexpected changes in your life, such as financial downturns, divorce or redundancy. Most retirement products offer the option of taking a premium holiday, giving you the flexibility to suspend or defer regular payment contributions until you can get things back on track.

Remember, it's never too early to start planning for retirement, but if you have let the years pass by, it’s also never too late. With proper financial planning and a disciplined focus, you can improve your future prospects at virtually any age. 

This article was written by Muriel Rutland, CEO of HSBC Life Assurance (Malta) Limited. It first appeared in The Times of Malta on 8 February 2021.

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