5 Tips to Help You Retire Comfortably

Oh retirement! That glorious time when we are free from the stresses of corporate life and can do what we want, when we want, where we want, and how we want. For many, this is a highly anticipated point in life after decades of working a 9 to 5. However, many of us do not properly prepare for this transition in our lives. Did you know that 42% of Americans have less than $10,000 saved for retirement and are at risk of retiring broke? Here in The Bahamas, we also have a lot of room for improvement when it comes to preparing for retirement.

The most important thing to consider when pondering retirement is the type of life that you would like to live. For some it will include meeting friends at Wendy’s or McDonalds every morning while others may be interested in traveling more. No matter your plan, it is important to envision the lifestyle you wish to live and estimate the cost to maintain it. In this article, we’ve shared five tips that everyone can use to plan for retirement with ease.

#1. Build A Resilient Retirement Fund

It is common for Bahamians to believe that retirement benefits from the National Insurance Board will cover all of their expenses once they are no longer working full-time.. However, if the amount of your benefit is not enough to cover your current lifestyle, it may not be enough to help you retire comfortably either. Retirees should seek to replace at least 70% of their lost income when they stop working. A comprehensive retirement fund would include a corporate or private pension plan, National Insurance and private savings. If you work for a company that offers a pension plan, take advantage of it. Sometimes, companies match your contributions up to a certain percentage of your salary. If you work for yourself, you can shop around for a private pension plan with a local financial institution.

#2. Generate Passive Income

Before we retire, we should look for ways to generate passive income. Passive income is money that you can earn on a regular basis without putting in a lot of effort. Examples include investing in rental properties and/or purchasing stocks or bonds, which pay dividends and interest regularly (read our Securities 101! blog post for more about how this works).  This income does not depend on how much hours of work you put in and can provide much-needed financial support on a consistent basis.

#3. Evaluate Your Housing Needs

As you grow older, many of your needs will change - especially those related to the requirements and functionality of your home. The big house that you occupied when you were raising your kids may quickly become an “empty nest” empty as they branch out to create their own lives. Without your pre-retirement level of income, it may become difficult for you to maintain a large house. You may need to think about renting a room, renovating your home to accommodate your new lifestyle, or selling it and downsizing to a smaller place that is cheaper to maintain.

#4. Reduce Exposure to Risky Assets

Our risk profile changes as time goes on. While we are young, we have employment income and retirement is many years away. Based on this, young people are encouraged to take risks and focus on capital growth. As we grow older, we should start taking fewer risks as our life expectancy decreases and our need for cash increases. A savvy investor will begin to reduce their exposure to risky investments such as stocks in favor of fixed income investments like bonds. These will provide more consistent cash flow while maintaining value. If you have risky items in your investment portfolio, speak to your investment manager of financial planner about your options as you age.

#5. Pay Off Debt Before Retiring

It is crucial to eliminate all debt before you retire. Interest and debt repayments will quickly consume your savings. One of the biggest loans we may ever have is a home mortgage. Try to complete mortgage payments before you stop working. If you are a young adult reading this, consider your potential retirement age before you obtain a mortgage. Ensure that the timeline for repayment does not overlap with your retirement period. If you are an older person who feels bogged down with debt, perhaps you should think about consolidating your loans. You should also speak to a financial planner to help you get out of debt quickly (check out our How To Get Out of Debt blog post for more advice).

With careful planning, you can retire with the peace of mind that will allow you to focus on the things that are most important - spending time with loved ones, traveling, and enjoying life. The sooner you start saving and preparing, the better off you’ll be. You’ll thank yourself later!