What are the key steps to prepare for your retirement

For some, retirement is about travel and adventure, while for others it’s about finally being able to find time to relax at home with the family. Then there’s a myriad of retirement styles in between.

All of them have at least one thing in common – the need for adequate finances to sustain them. And then there’s the fact that we’re all living longer than previous generations. This means we’ll need to find more money to fund that ‘bonus’ part of retirement.

The current average life expectancy in the UK, UAE and India is 81.77, 78.46 and 70.42 respectively, and this is expected to increase over the next 20 years. So, what should we be doing to ensure we can sustain our finances throughout retirement, whatever it may throw at us?

Start saving now
According to a survey we commissioned, with a sample size of 1,009 respondents across the UAE, 63 per cent of the respondents planned to retire before they reached the age of 60, 45 per cent admitted they hadn’t even started saving for retirement.

It’s clear that people are leaving it late to start saving, with 16 per cent saying they would wait until five years before they retire to start saving; 22 per cent said they would start saving between 5 and 10 years before, and 18 per cent between 10 and 15 years before. Just 25 per cent said they would plan more than 15 years ahead, with 19 per cent saying they didn’t know when they would start saving. People also vastly underestimated how much money they would need per month when they retired. More than half of those surveyed said they would need less than $5,000 a month to live on during retirement. This leaves little room for unexpected costs.

Budget strategically
You may be used to planning a linear budget but, when it comes to retirement, there are likely to be three very different stages which actually form more of a ‘U’ than a line.

Stage one: This is where you’re likely to spend the most money, splashing out on everything you dreamed you would do when you finished working (for example on travel, motorbike, holiday–home).
Stage two: The settled period – where life returns to normal and you live in a more regular pattern (socialising, golf, spending time with the family).
Stage three: The unknown, such as healthcare costs and age care expenses, get thrown into the mix. This stage, although not as much fun as the first stage, can be almost as costly.

Don’t switch to investment autopilot as soon as you retire
Managing your investments once you retire continues to be crucial. Many people move to lower risk asset allocations when they give up work, which means their focus shifts to preserving rather than growing their wealth.
This is a fair strategy, however, if you’re doing this yourself, you’ll need to consider any tax liability you may trigger when switching investments.

It’s worth seeking out the services of a financial adviser to help guide you not only in planning your retirement, but also to help you keep on top of your money after you’ve retired. Regular meetings with your financial adviser after you’ve retired will help you assess if you’re still on track to fund your retirement. Again, the earlier you identify any issues and make any adjustments, the better.

Retirement expenses 
If you find your retirement income is no longer covering your expenses, there are a few things you can do. You may not want to, or may not be able to, take on a job and so reducing your expenses or freeing up your capital by selling assets is the obvious option.

For most people this may mean selling their property. This could entail moving to a different area with a lower cost of living or staying where you are, but downsizing to a less expensive home. Many people have their money tied
up in property and downsizing in later retirement frees up capital to support costs incurred during this period.

You could cut back on non-essential costs, like life insurance if your children are grown and able to support themselves. If you’re a two-car household you could save by cutting back to one.

Don’t put it off 
The single most important thing you can do for your future self is to start saving now. Firstly, consider at what age you want to retire and think about what you want your retirement to look like. Then, plan for building up a sufficient pension pot to sustain this desired lifestyle. Think seriously and be realistic about how much money you might need, adding in a contingency for unexpected costs.

The amount may surprise you but it’s important that you tackle the issue head on.

Simon Barwell is the marketing director of Friends Provident International and a board member of International Financial Group