Importance of Retirement Planning
By D. Victor
If we were certain about the future, planning for it would be very precise. The exact life span of every individual is unknown, if left to natural devices. Also unknown is whether our life situations may change dramatically. The benefit of planning for retirement is that we anticipate the risks and circumstances that we might face. Protecting your financial future would include the two major dimensions of financial planning; protection and accumulation products. Where retirement is concerned, the following are compelling reasons to protect your long-term future:
1) Continued employment is not a guarantee
Provided that we save throughout our work life, we'd have enough reserves to have money working for us ultimately. However, this is not always the case. Economic strife, downsizing, critical illness and disability are forces that may curtail our employment or employ-ability significantly. We cannot assume that we'll continue working up to retirement or past it. There is simply no guarantee for that. We must therefore have products like disability income plans, critical illness benefits and emergency funds even in retirement to help us deal with the possibilities arising from uncertainty.
2) Risk of outliving your savings
The risk of outliving your savings is better known as longevity risk. This risk is increasing because the average life expectancy of both males and females is on the rise. If you do not save enough for the golden years, you may reach a stage of financial dependence early in your retirement phase. On average, we should cater for thirty years of retirement. Clearly, not everyone lives so long. The concept of averages suggests that you may be one of those with an extended run. It is much better to have than to have not.
3) Other debilitating risks like inflation and purchasing power risk.
Inflation risk is the erosion of financial returns as a result of a contraction of demand or expansion of the money supply. Inflation risk reduces the real return of your savings. Diversifying your portfolio is one means of protecting your savings against this risk. Purchasing power risk is the erosion of the purchasing power of a dollar as a result of the increase in living expenses. Purchasing power risk lowers the real value of your income, even if the nominal value is increasing. Not catering for future certainties like inflation, reduced purchasing power and taxation would leave you struggling in the present and future.
4) Additional health problems and increased health risks as we get older
The risks of illnesses increase with age. Many people develop conditions or diseases well into their retirement phase. With these come additional medical expenses that need to be covered. These may range from prescriptions to operations. The expenses may either be prohibitive or ongoing. If you have insurance in place to take care of these crippling expenses, then you would rest comfortably knowing that your savings won't be absorbed by niggling expenses or medical disasters.
5) You may have dependents in your golden years
Again, we do not know what the future may hold. Even if your children are grown, you may have financial dependents if something happens to them and they are not covered. You may have grandchildren who are orphaned as well, so nothing can be taken for granted. The savings that you dreamed of may be absorbed by unforeseen events such as these. If you use proper financial planning, you would have provisions in place for these occurrences.
Risks generally arise because of uncertainty, making it necessary to guard against several negative possibilities. Everyone would have specific risks based on their respective situations. Having health insurance is a critical first step in protecting your financial future. Financial planning is relevant to us at all life stages. The priorities may change, but the importance of covering risks is undeniable.
About the Author:
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