What is Retirement Planning?
A retirement plan is a long-term financial strategy to save money and make investments meant to sustain you throughout your retirement years. Creating a retirement plan begins with clearly defining your long-term financial goals, how much time you have to achieve those goals and your risk tolerance. Considering a number of variables such as life expectancy, family size, retirement age, and debts contributes to a holistic retirement plan for a smooth transition into retirement.
A common question that pops up in retirement planning is when should I start? The answer is the earlier the better. Kickstarting your retirement plan early on in your work life allows you to take advantage of the power of compounding by giving your savings more time to grow. Another reason to start your retirement plan early is young investors can take on more risk unlike investors close to their retirement who have a lower risk tolerance.
Retirement Planning Steps
When creating a retirement plan it is good to keep in mind that it is meant to evolve over time. This means you will need to update it from time to time and monitor your progress toward your financial goals as you make adjustments where necessary. These are the steps you can take to begin planning for your retirement years:
1. Define your retirement goals.
Your retirement goals act as the focal point from which you make your saving and investment strategy. It is a fundamental step in the initial stage of retirement planning. The first step of coming up with retirement goals is envisioning what you would like your retirement life to look like. The second step is setting specific measurable objectives to achieve that vision.
Some key considerations to make include the lifestyle you want to maintain, potential travel plans, hobbies, and any other personal aspirations. It is also important to consider essential expenses such as housing, healthcare, and daily living costs. Having clearly defined goals allows you to better estimate the amount of money needed for your retirement and develop a tailored savings and investment strategy. If you have trouble clearly defining your goals you can check out Ndovu, an investment platform based in Kenya. Ndovu offers a goal-based saving approach tailored specifically to your needs.
2. Figure out how much money you need to retire.
Once you have clearly defined your retirement goals now you need to ask the question how much do I need to achieve my retirement goals? People will tell you you need about Ksh 40,000,000 to retire comfortably but the amount you need is highly personalized.
The amount of money you need to retire depends on your goals, your current income and expenses, and how you think those expenses will vary over time. Most professionals advise using the 80% rule which states you need 80% of your current income to live comfortably after retirement. So if you made Ksh 1,000,000 per year you need Ksh 800,000 for roughly 20 years. Essentially this step involves creating a retirement budget using a retirement calculator to quantify how much money you will need.
3. Choose the best retirement plan for you.
Determining how much to save is only half of the equation in retirement planning, determining where to save it is the other half. A good place to start is to first check if you have a 401(k) or other employer retirement plans. If your employer does not offer a retirement plan you can open an individual retirement account (IRA), which is a tax-advantaged investment account, to hold your savings.
While there is no one-size-fits-all retirement account, you can still find a retirement account or a combination of retirement accounts that suit your retirement goals. In most cases, the best plans offer tax benefits and additional saving incentives. This is why a 401(k) with an employer match is a popular choice for most people starting out on retirement planning.
4. Select your retirement investments.
Retirement accounts provide access to a wide range of assets including stocks, bonds, and mutual funds. Determining the right retirement investments that will suit your needs depends on your time horizon till retirement and your risk tolerance. When investing for retirement you want to invest aggressively when you are young and slowly dial back as you approach your retirement years.
This is because, in your early work-life years, your money has plenty of time to weather market fluctuations and recover from a few bad years. There are several investment platforms in Kenya such as Ndovu, you can depend on to make sound investments based on9 your retirement goals. The Ndovu app gives you a range of investment options you can use to reach your retirement goals and even surpass them!
Retirement planning is a crucial process that involves defining clear financial goals, determining how much you need to save, and choosing the right investment strategies. Starting early allows you to leverage the power of compounding and take on higher risks. Platforms like Ndovu offer assistance to help craft a personalized retirement plan. With the Ndovu app, you have access to a variety of investment options, making it easier to achieve and even surpass your retirement goals. By taking these steps, you can ensure a comfortable and financially secure retirement.
Disclosure:
Ndovu is a regulated Robo-advisory platform operated by Ndovu Wealth Limited (‘NWL’). NWL is a Fund Manager licensed by the Capital Markets Authority (Kenya).
The information provided on this platform and the products and services offered are intended solely for persons in regions and jurisdictions where such distribution and utilization are in accordance with local laws and regulations. Ndovu does not promote its services in regions where it lacks the necessary licenses; It is exclusively available to persons residing in countries where it holds a valid license or has regulated partners. Ndovu does not extend its services to citizens of the United States, Canada, Japan, and other restricted territories.
Disclaimer:
All ETF products are subject to risk, including country/regional, liquidity, and currency risks. Market prices of securities within the ETF may rise and fall, sometimes rapidly and unpredictably.
While ETFs provide diversification through exposure to a basket of securities, they do not eliminate the risk of loss. Diversification does not ensure a profit or protect against a loss. These are non-cis products and are registered by the SEC.
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