Paying your way in retirementDo the sums and see if you’ll be a satisfied senior some day.

Remember the first 20 years of your life? You discovered the world, encountered new things every day, grew up, learnt skills and gained knowledge that would last you a lifetime…

You didn’t have big worries or huge responsibilities and most of all, you had the time and the freedom to have fun. Guess what? Your retirement years could be just like that. Statistically, you could have 20 years or more of freedom and enjoying yourself.

The most significant difference will be you’ll have to pay your way. And that’s what makes retirement planning so important.

A US government study showed that less than half of Americans have calculated how large an income they will need in their golden years. After retirement you might have less expenses – house and car paid off, no education fees. But experts generally agree that to maintain your lifestyle, you need a monthly income equal to at least 75 percent of your working salary.

So where to start, what to do?

All adults go through three main stages in their lives:

  • Pre-retirement – you build personal wealth and save so that you can retire comfortably.
  • Transition – you’re approaching retirement age and have to protect the retirement savings you have.
  • Post-retirement – you live off the income created by your retirement savings.

Retirement planning covers all three stages and works out how to approach them to achieve the best results.

In pre-retirement, work out how much should you save. It’s complicated, because people have different needs and unique situations. But at retirement, you should have enough to invest for a good replacement ratio – that’s the 75 percent of your working salary.

For most of us, that means saving a lot. It’s never to late, but much better to start early, sticking to your plan and never dipping into retirement savings during your working life.

Calculate how much you can afford to put away now and how long you have until retirement. Do the maths to see what your replacement ratio will look like.

It sounds gloomy, but also consider that you might end up not working as long as you want to. You also can’t assume you’ll have a job for all your working years. A cold fact is that you might need long-term care eventually – privately or in a home.

Clearly, you should be saving as much as you can when you can. And the longer the money is invested, the greater your investment return.

In the transition phase, a decade or two before retirement, your situation might be changing. Look at ways to cut costs so you can have more money to save. If the kids have moved out, consider a smaller home. If servicing your dream car costs a fortune, trading it in for something more economical is sensible.

After retirement, it’s time to manage the proceeds of your retirement savings by investing them in something that will provide you a good, sustained income.

Planning far ahead is hard. Choosing the right investments from so many options isn’t simple either.

There is an easy way to plan your ideal retirement. Talk to an adviser at Old Mutual and get a clear picture of what lies ahead and how you can ensure financial security for the rest of your life.