Investment Kindergarten

Retirement Planning

The significant difference that separates retirement planning from other investment objectives is one of magnitude and changing life expectations. Less than two generations ago, retirement needs were considerably more modest… A “nest egg” sufficient in size to augment state or company pensions to ensure that one was not a burden on ones children with sufficient left over to ensure burial expenses. Life span objectives, was to reach the magic biblical “three score and ten”… with not much expectancy beyond.

21st century individuals are much more demanding regarding their retirement prospects, yet, rarely make the necessary decisions nor provide adequate provisions to create and fund the programmes to ensure their aspirations are met.

The fundamental, indisputable reality about good retirement planning is that it’s predicated on simply making provisions out of current income and investing for the time you retire.

Every study ever undertaken anywhere in the world irrefutably demonstrates that those who pragmatically decided to regularly channel part of their income throughout their working life to meet their and their family’s retirement needs, were infinitely more likely to enjoy a happier, healthier and longer life. They were always in control of their life style decisions and subsequently better positioned to ride out periods of economical and political adversities that impacted enormously, those less well prepared.

Those whose philosophy is “live life for today” must realise, that compared to their parents that there will normally be very many more days to “live” in their lives… and that reality requires addressing. Those extra days, will be when their likely avenues to any earning opportunity is continually being eroded and income potential is derisory… To believe otherwise is to ignore history and dispute logic.

The need for effective planning has never been greater, especially within those countries where history reveals environments where repeated economical recession and regularly experienced boom and bust cycles as being endemic. It is never too early to take control of your retirement provisions the positive effect of time combined with “compound interest” is quite remarkable. However, many leave it too late to ensure a painless simple solution to enjoying the financial security and quality of life that most aspire to and have worked hard to achieve.

For those without a significant company or safe government pension in place, then most professional advisors urge that 10 to 15% of your earnings throughout your life is a good benchmark for achieving a financially independent retirement. However, what “should be” and what “can be” channelled into an appropriate multi faceted programme will depend on your other financial commitments. Notwithstanding our modern day spending life styles, at the earliest opportunity an assessment should be undertaken to construct a realistic disciplined procedure whereby the necessary funds are made available.

Note: The following reality is true…

Somewhere, within the above table is the actual timetable for all individuals. How they decide to use it is defined by their reality and commonsense levels.

Once the decision to instigate and provide the necessary resources is made then the extremely important selection of method, programme or series of plans to achieve the best results… your present and future financial circumstances will allow… must be addressed.

OPTIONS AND STANDARDS

Assuming that an individuals required annual retirement income is assessed as a modest $25,000USD p.a.(currency equivalent). The benchmark, is that the capital is never touched, then as your accrued fund will by then, be very conservatively placed one can assume a net 8% maximum average growth which must = $25,000US annual retirement income; then the fund established must be $312,500USD. Assuming an ultra safe investment offering 6% is chosen, then, approximately $420,000USD is needed. This is simple mathematics!

The options available are many and varied, too many and too varied to address here, however, some fundamental standards must be applied. For instance if you have applied the discipline and fortitude to instigate the programme/s to begin and finally accumulate the fund necessary then as we are talking many hundreds of thousands of dollars, then  two standards are paramount….

1:             Unlimited security
2:             Investment adaptability and flexibility

All investments involve risk, however, historically the return generated via a diversed long term programme have consistently out performed alternatives, despite any short term volatility. Therefore a considerably six figure amount is achieved. Therefore the first question must be….I have accumulated it… is it safe? Well in most cases actually no… or at least only part of it.

For those investments instigated and managed in the USA and Continental Europe there is a maximum of $100,000USD insurance on investment and bank accounts, should a commodity or hedge fund trader, make a bad decision and bankrupt the bank or investment house, where your fund is placed. (Sadly more likely than before).

Our clients instigate and manage their investments (see clients security) whereby a minimum of 90% of accrued value to an unlimited amount is secured. Anything less does not meet the benchmark standard.

This quality must be matched by the freedom to choose from the very best available vehicles and investments ( measured by all detached critical analysis) and these vehicles must provide benchmark benefits…such as

If these basic features are provided within your saving formats then an investor with a reasonable level of commonsense and discipline can create the fundamental platform which their retirement aspiration can be constructed.

If a programme is instigated without these basics then inevitably an individual, quite unnecessarily put their future quality of life at risk. The question really must be…Why would one?

A 35 year old professional has 360 paycheques and perhaps 30 annual bonuses from which to create his long term financial security. It may seem quite a lot of time but if they had commenced this necessary, fundamental programme five years earlier, whatever the regular contribution size, the amount available, if they had enjoyed an average of 8% annual growth, would be 57% greater. If a 10% average was achieved, 69% greater, and at 12% p.a. average, it doubles.

Assuming that $300,000USD has been achieved through 20 years of regular monthly contributions, then the following is simple mathematics and would have been achieved if started 5 years earlier and experienced the same average annual growth...

If they had started a further five earlier the same $300,000USD achieved after twenty years would have growth to the following in 30 years...

NOTE: The most commonsense approach would be to begin a staged pragmatic programme during the last five years of any investment programme, whereby each month a percentage of the accumulated amount would be moved into conservative holdings thereby ensuring gains to date are locked in for the client's future benefit. Therefore the figures above are the simple mathematical results used to illustrate the point regarding time. The more realistic commonsense approach amounts would be...

If a further five years earlier...

NOTE: The above assume the annual averages achieved until the 20th and the 25th year of the projections, with the final years averaging 6% each year.

The above uses a month contribution programme and we are assuming a 35 year old individual stopping all work/earning at either 60 or 65. The target amounts are achieve with the following monthly contributions.

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