Wednesday, August 13, 2008

10 Steps To Great Retirement

We will grow old and retire one day (provided we don’t do a ‘Heath Ledger’). As a senior citizen, we still need to eat and surf the net. Here are 10 steps to ensure we have the dough for our sustenance :

1. Face your future honestly. Retirement studies show that those who exercise control over when they retire live happier lives than those who wait to be put out to pasture by others. Malaysians generally still expect our children to look after us in retirement. It is not a good safety net as our children have their very own family to take care of. So be proactive, plan our own retirement.

2. Exercise delayed gratification. Don’t spend like there’s no tomorrow. ‘Delay’ some enjoyment in the short term for the great enjoyment in the long term

3. Start yesterday, failing which start today. The time value of money tells us money today is worth more than the same amount tomorrow. E.g. RM1,000 today will be worth RM1,030 one year later if it is deposited in a 3% fixed deposit account. This ability of money to snowball over time is termed compounding.

4. Save money. Two effective ways to save money 1) set aside savings before allowing any other outflows each time we receive our salary. Inflows – Savings = Outflow 2) manage our cash flow effectively. It’s obviously better to start saving early, it is never too late to start even if we’re already close to retirement.

5. Beef up net worth. Our net worth statement is the difference between assets and liabilities. We should boost our productive assets that generate passive income in the form of dividend, rental and interest.

6. Create own pension. Some public servants can look forward to a lifetime pension. Others include the private sector workers contribute to EPF. Retirees must have a pension. No pension, no retirement! So, those without a government pension must take personal responsibility for creating their own. The goal should be to proactively create multiple sources of income from investments and through a future pipeline of passive income.

7. Prepare for future inflation. A major factor in retirement funding calculations is future inflation. Saving money in the bank is unlikely to generate returns greater than inflation. So, start educating ourselves on the damaging effects of inflation and the need to accept some level of investment risk.

8. Enslave our money. Make our money works for us. Failing to plan is planning to fail! The wealth we accumulated throughout our working life will have to work for us too. The larger that pool of resources and the harder it works for the retiree, the better the quality of life in retirement.

9. Aim to be debt-free. While there is such a thing as good debt that ends up enriching us, most people are wired in such a way as to benefit from living a debt-free life. Work toward attaining zero gearing in as short a period as is practical. Certainly settle all credit card monthly dues promptly and in full! Remember, there is always a cost to borrowing.

10. Marry a Rich Spouse!

That’s The End!

No comments: