An often forgotten part of life is retirement. Sometimes, you delay to save up for your retirement funds, thinking your retirement is still far off. But before you know it, retirement is knocking on your door all too soon. And sometimes, you save for your retirement only to find that once you welcome it, you hadn’t saved enough for it! The general rule when it comes to retirement savings is to put aside between 10% and 15 % of your income throughout your working years. This is an approach that has been around for many years. However, there is another method that’s gaining popularity – and it may be the right method for you!
The alternative method of retirement savings is based not on what you earn through your working life, but rather on the lifestyle that you plan to lead once you retire. This approach makes a lot of sense if you plan on making big lifestyle changes once you hang up your boots.
Perhaps a few scenarios can help illustrate the importance of lifestyle when considering your retirement. Here are some of them:
Meet Anne and Alister. Neither Alister nor Anne generates an income, and they live off their social security, pension pay, and their pension/provident fund withdrawals/benefits. This couple is debt-free. They lead a simple lifestyle and enjoy homecooked meals and several inexpensive activities, like knitting, walking the dog, and gardening.
Meet Brenda and Bill. Like the previous couple, they have no income stream, and they also receive payouts from their pension/provident accounts and their pension funds and are also debt free. However, unlike the simple lifestyle of Anne and Alister, Brenda and Bill dine out, enjoy tennis and sailing, and even own a holiday home on the beachfront. They travel and take frequent trips abroad.
Meet Casey and Calvin. They are retired but have continued to work through their retirement. The income they generate is not necessary, but they enjoy the working life and have their savings which ensure their comfortable lifestyle. They have simple businesses but because of the time they dedicate to work, they accumulate more money than they know how to spend. Of course, this means that they can leave a healthy estate for their children or loved ones.
Meet Dianne and Dan. This couple planned their retirement out well and have reliable streams of passive income through their rental homes, dividends, and royalties that they set up when they were younger. While they have retired comfortably and don’t need any additional funds, they still find that they need to manage their income sources and this involves managing bookkeepers, repair services, property managers, and more.
What these scenarios illustrate is how many different forms of retirement lifestyles there are, and since everyone is different, so is their ideal lifestyle after retirement. The formula that is prescribed through traditional retirement advisors is a good start and is certainly better than nothing by a long shot, but it simply does not take into account the type of life you wish to lead when you retire.
So what you need to do, is to decide what type of life you intend to lead. Once you decide which scenario suits you best, determine a rough estimate of how much you will require to live out one year of retirement in the lifestyle you selected. Multiply the figure by 25 and you have the amount that you should have in your retirement savings. This method bases your retirement on your spending and does not depend solely on your income. Of course, if you aren’t earning much to begin with, or if you started saving up funds later in your life, you will have to consider how achievable your retirement goals are. Be realistic and have savings goals each year to ring you closer to that wonderful day when you can give up work and live the life you planned for yourself!
Don’t forget to take into account the costs you may overlook – things like basic living expenses, your debt and responsibilities, insurance requirements (medical aid, car insurance, home insurance) and other financial elements that will be necessary for your retirement. It takes a lot of planning to lead a happy retirement but it’s possible to do so. All that planning will be worth it in the end.