This Retirement Plan Tips and Advice is shared by Sanjay Tolani, 15 years member of the Million Dollar Round Table – The Premier Association of Financial Professionals, with 2 Court of the Table & 11 Top of the Table honors. He became the youngest member in 2003 at the age of 19 and then qualified as the Youngest Life Member in 2012 at the age of 28.
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Imagine this:
You turn 65 and the 1st month you get a cheque of $10,000; what would you spend it on?
2nd Month you get $10,000; what would you spend it on?
3rd Month you get $10,000; what would you spend it on?
4th Month you get $10,000; what would you spend it on?
Isn’t this what retirement should be?? Getting this monthly income without having to worry about anything except where to spend this money…. Not having to worry about saving any off it because you keep getting this income irrespective.
When planning for Retirement it is important to identify the different possible sources of Income you have when you retire.
When you are in your “GOLDEN Retirement Years” you probably don’t want to be worried where the money will come from every month.
The general potential sources of income are:
1.Rental Income from Property
2.Coupons from a bond portfolio
3.Interest on Fixed Deposits
4.Dividends from Preferred Shares or Income Generating Shares
5.Pension from Government Social Security
6.Income from an Endowment Policy
Income from the above sources can be classified into Variable or Guaranteed
A. Property: Variable Income
Rental Income is a variable source of Income and one of the most common ways to build a retirement income.
Points to consider:
1.Maintenance of property (as property ages the cost of maintenance increases)
2.Finding the right tenant
3.Renovation & Restoration between tenancy agreements
4.Tax on Income & Property
5.Annual Maintenance Contracts (Outsourced) cover minor repairs but for all major repairs they may need approvals and instant payments.
B. Bond Portfolio:Guaranteed/Variable Income
Bonds provide a guaranteed coupon to the investor and protect the value on maturity.
Points to consider:
1.Rating of the Bond Issuer (if the coupon is too good to be true it probably is)
2.Reinvestment Risk on maturity of the Bond (Hence income will be Variable)
3.Bonds going bankrupt
4.Taxation on Income from Bond Coupons
C. Fixed Deposit:Guaranteed/Variable Income
Income from Interest earned on Fixed Deposits is probably one of the easiest ways to have an income in Retirement.
Points to consider:
1.Reinvestment risk after maturity of the Fixed Deposit. (Hence Income can be Variable)
2.Maximum duration of the Fixed Deposit is not very long which may increase the risk of not getting enough income.
D. Income Generating Equities: Variable Income
Some Equity Portfolios can be designed to give a regular income at retirement.
Points to consider:
1.Income is based on Corporate Performance which is Variable so cannot depended on.
2.It is an excellent way to hedge for inflation as profits are usually inflation adjusted and hence a very good source of income hedging in retirement.
3.Corporate Risk of the equity portfolio (company can go bankrupt)
E. Government Social Security: Guaranteed Income
Governments may provide citizens with Guaranteed Life Time Income. It is a recommendation in many cases to get maximum income from a source like this as it is for a lifetime and we know people are living longer than ever before.
Points to consider:
1.It may not be sufficient income to depend on for your lifestyle as most governments put a cap on the total contribution to such a program.
2.Changes in political agendas may affect these income levels and hence could be of concern.
F. Life Insurance & Retirement Plans: Guaranteed/Variable Income
These are usually used to build up a nest egg and build a steady flow of income. However not all are the same.
Points to consider:
1.Is the income variable or guaranteed?
2.How long is the income guaranteed for?
3.What is the credit rating of the insurer?
4.How much is the minimum guaranteed income and potential incremental income?
5.Does it provide a lumpsum on retirement or an income in retirement?
6.Taxation on income from Life Annuity Products?
This is a summary of risks and concerns when planning for retirement.
“Assets in Old Age become a Liability;
Income is the TRUE Asset.”
When you do retire; build as much guaranteed income as possible and use variable income to combat external factors like inflation and lifestyle upgrades requirements.
Building a base income gives you the comfort that you don’t need to depend on variable income when markets move up and down.
Details needed when building a retirement income stream:
1.What is your age today?
2.How much Minimum Guaranteed Income do you need every month? (be realistic)
3.How is your health?
4.Retirement is at Age 65 anything before that is a holiday … not retirement (be clear of your true retirement age)
5.How long would you like your income? (forever is usually the answer)
6.Do you have current variable income? If yes; how much of it are you reinvesting back in the variable assets and how much are you diverting to Guaranteed income assets?
If you are unaware on the above; speak to a financial advisor today. Spend some time to discuss and plan the longest vacation of your life… YOUR Retirement!!
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