No matter how old you are when you start planning and saving for your retirement, the earlier the better of course, or whether you do it on your own or with a licensed financial planner, it is important to review it at least once a year.
Things change – you get married, have a baby – which can have an impact on monthly expenses.
The Covid-19 pandemic has brought its own special concerns. The various movement control orders and the economic fallout could affect future planning.
You may be living on a reduced income or have lost your job. So, now would be a good time to take another look at your retirement planning and how to strengthen it.
Here a few tips to improve your retirement planning in the new normal.
1. Review your retirement goals
You need to be realistic about how much can be put aside under the present circumstances. Ask yourself:
- How will the new normal affect your current/future income?
- Will you be among the first to be affected?
- How flexible are your current retirement plans?
- Do you have any alternative plans?
Examine your career path and assess your specialisation and competency level. How badly does your company need you?
Can you be easily replaced by technology? Your answers would tell you how secure your future income is to ensure you can achieve your retirement needs.
A career change may be an option, becoming self-employed rather than unemployment.
How about those who have kicked-start their retirement planning with a single income stream. It may be time to develop an alternative plan.
Set realistic goals based on your current situation and the state of the economy.
2. Reconsider your income versus expenses
Look at your cash flow. Most income earners have been affected by new government policies.
Reconsider monthly income and expenses patterns. Some companies are instituting pay cuts, some are reducing manpower and making changes to their forecast profit and loss.
Those whose incomes have not been affected, should re-examine wants versus needs. Prioritise basic needs and do not overspend. Any savings should be put aside for a rainy day and retirement.
Those who have been badly affected must identify their basic needs and commitments. They will have to adjust their lifestyle, but they should not stop putting aside money for retirement.
Carefully look at your cash flow to see what needs to be kept and what needs to be chucked away. The more flexible your retirement planning, the more peace of mind you will have.
3. Discuss retirement goals with your spouse
Many people start their retirement planning without consulting their spouse.
Such planning falls short because of misguided assumptions, a lack of insight into spouse’s life, or the onset of a critical illness. Many are forced to forego retirement due insufficient funding.
It the pandemic has taught us anything, it is that life is uncertain, and we need to plan ahead.
Involving your spouse makes sure they understand the goals and they can contribute to the planning.
4. Review rainy day funding
Given the uncertain times, it is important that your retirement plan is achievable. It is important to ensure the retirement plan is achievable.
Look at how much you need in your emergency fund. It is advisable to have six months to a years’ income as a buffer.
If you run a business make sure there is enough set aside to keep it going, so, if there is a new crisis, the retirement planning can continue without interruption.
5. Review your current retirement portfolio
As important as it is to assess how much money is being put aside, the investment portfolio – stocks, property and so on – must be reviewed during this time of economic headwinds.
The crisis has affected many industries and will affect the retirement investment portfolio. For example, a plan to sell an investment property might have to be put on hold due to a soft market.
Oftentimes, people only look at performance of each asset class and forget about the importance of the overall portfolio returns over a period of time.
Maintain a robust portfolio and ensure your asset allocation is done according to your risk tolerance.
A diversified portfolio consists of all asset classes based on your personal risk profile and constantly reviewing it is critical. A diversified portfolio allows you to take advantage of market movements in all asset classes, which will help you achieve retirement goals.
Conclusion
Managing your finances in these times is more important than ever. If there is a silver lining, it is that more people are aware of the importance of managing financial health holistically.
For retirement planning, focus on the long-term goals rather than short-term profit. The investment portfolio must be able to withstand any shocks to take you to your retirement as planned.
This article first appeared in MyPF. Follow MyPF to simplify and grow your personal finances on Facebook and Instagram.