Retirement planning consists of knowing the money you will need when you retire (in the form of income that will complement the public pension) and how you will get it.
In planning, it is essential to periodically determine if the money income Planninged during the savings period will be sufficient to cover future needs.
Retirement planning for retirement has some fundamental basic principles that will undoubtedly help you face your future without the inconveniences that improvisation brings.
These basic principles for Retirement Planning can be summarized in the following Decalogue:
- Make a list of all retirement assets currently owned . It is necessary to have all the asset information since it will be essential to determine the starting point and know how much will be left to save.
- Estimate the public pension that will be received in retirement . It is decisive to look for the income supplement or private pension that we will need for that moment. It is noteworthy that the public pension is a dynamic variable until the day of retirement and, therefore, during the savings constitution period, we must contemplate and adjust forecasts to the different changing periods (for example, now the last 19 years of contribution for the calculation of the public pension; before there were 8 and the trend will be to consider the entire professional career).
- Calculate other future income that may be received . Possible earnings from real estate, interest earned on savings, and other s or inheritances expected to be received.
- Calculate the liability . Make a list that includes mortgages, home equity loans, and other credits. Debts need to be subtracted from assets to determine net worth.
- Assess insurance needs . Establish complementary coverage so that the savings period is not reduced by health. It is important to review the life, disability and health insurance policies to adjust the coverage, increasing or reducing it, to achieve equity balance. For many retirees, life insurance is generally reduced, although it is increasingly used by people with high incomes so that their heirs can face inheritance tax. Health insurance is usually maintained.
- Estimate retirement income (needed or desired). It is very difficult to estimate it when one is far away from reaching 65/67/70 years of age (we will see at what age we will retire) and it is easier the closer one is; In both cases, it is a necessary and interesting exercise since, as is logical, it is very directly linked to expenses in order to estimate the volume of income required. The analysis of the variable expenses has to begin by studying the current ones and then adjusting them based on the forecast of expenses in retirement, including medical expenses, insurance, trips and hobbies.
- Calculate how much more you need to save to meet the goal . To do this, you will have to calculate the difference between the sum of money that will be needed in retirement based on the set objective and the sum of money saved at the time of retirement with the current expected rate.
- Consider important variables: taxation, inflation, estimated interest rates… Retirement retirement planning is dynamic since there are exogenous factors or factors beyond the will of the saver, such as taxes, inflation and interest rates, which will force us to have a review plan every quarter, for example (the period is basically determined by the type of ).
- Increase savings by managing expenses well . One way that helps save is to reduce payments, debts and avoid interest on term consumption schemes. It is an additional form of savings.
- Adjust the plan periodically . Not only due to the exogenous factors indicated in point 8 and in the conditions and amount of the public pension, but also in the changes that occur in the employment situation, in the greater or lesser capacity to save, incurring in unforeseen expenses , in inheritances with surprise, etc…
Posted by: John Labunski