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The Two Stages of Retirement - Bridging the Gap

A happy retirement is enabled by two essential ingredients - plenty to live for, and enough to live on.

The first of these can take many forms, such as good health, new experiences, travel and quality time with our families. Everybody's retirement looks a little different, and the way you choose to spend your time will be very personal to you.

On the other hand, having enough money to live comfortably in retirement is a priority we all share, and it requires a little more careful planning - particularly at a time when major political, social and economic changes are having a significant impact on our finances.

With an ageing population and a rising cost of living, you may not be able to rely on your state pension alone to provide a good quality of life after retirement. Therefore, it's important to make a clear and achievable plan for what you want from your money when you retire, even if it still seems a long way off.

The two stages of retirement

You might not realise it, but your retirement will likely come in two stages. Straight after finishing work, most people tend to be busy, independent, more agile and in better health. Many people assume that this active stage will be the longest phase of their retirement. 

Indeed, for many people, ending their regular working pattern may not be a 'retirement' at all. A number of retirees will actually continue to work in some form, whether it be a part-time job, a new business venture or providing more support to their families through childcare etc.

However, as time goes on there is a second stage in which some people may start to need assistance with day-to-day tasks such as physical activities and going abroad. This is when they are likely to incur the most cost. 

The importance of planning

Growing older can bring uncertainty for many. However, most working people feel hopeful about their retirement. They look forward to pursuing old and new hobbies, developing interests, enjoying more freedom and taking the opportunity to spend more time with friends and family.

Despite the lack of certainty, and the common tendency to avoid planning because of it, when planned for appropriately, retirement can be one of the most relaxed and rewarding periods in our lives.

Consider the following practical steps when planning for the retirement you want:

Reframe how you think about retirement

It's easy to put off planning your retirement, so reframing how you view this chapter in your life is important. Think of it as a chance to pursue your passions and enjoy new adventures. 

Visualise the future you want

Think about the shape of the retirement you want. Do you hope to go travelling, move home, take up a new hobby or even start a new business? Having a broad idea of how you'd like to spend your retirement will allow you to plan for it more effectively.

Be realistic

Make sure you are well prepared for a long and comfortable retirement. Factor potential later-life healthcare costs into your retirement planning.

It's never too early to start saving

The earlier you start saving, the less you will need to put in, in terms of a regular contribution. On the other hand, the later one starts saving, the higher the regular commitment required to arrive at a particular financial goal in less time.

By investing early and staying invested, you are more likely to benefit not only from the pension pot you accrue, but also from applicable tax incentives which may be announced from time to time by the government. 

Consider the risk

Balance your ways of saving and investing for retirement to spread risk and maximize returns. A higher risk investment strategy may offer more enticing long-term prospects when you have time to course-correct if something goes wrong. However, as you get closer to your retirement age, you may wish to revert towards a lower-risk investment plan to preserve the capital you have, at the cost of reduced potential for growth.

Plan for the unexpected

Unexpected events can have a major impact on your retirement funding. Include worse case scenarios when planning your retirement and consider putting protections in place to help secure your income in case something goes wrong.

Ask the experts

Nobody expects you to be an expert in saving and investments, so seek professional financial advice to help you plan and cost out your retirement plans with the help of retirement calculators. This will help you decide on the right approach. Don't be afraid to ask questions - get clarity before making decisions and understand the value of flexibility to increase your retirement potential.

From managing to planning

In conclusion, simply managing your finances is not enough - you need to plan where you can save money and how much. By consulting with a professional adviser, you can identify the changes you could be making that will cut costs today, allowing you to direct those savings towards securing your future tomorrow.

This article was written by Muriel Rutland, CEO of HSBC Life Assurance (Malta) Limited. It first appeared in The Times of Malta on 3 November 2020.

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