Plan early for your retirement

Q: When is the right time to start planning for my retirement and what are the elements I need to consider?

A: A key part of any personal investment plan is to set life goals, as well as fin-ancial ones. Thinking about retirement is one positive way of setting these goals, because it prompts a lot of useful questions.

What kind of lifestyle do you want in 10 or 20 years? How much will you want to travel? Where do you want to live? Do you want to live in your current house or buy a new one?

A good step - once you've established your retirement goals - is to try to work out what the overall costs will be. If you're planning to travel, you'll need funds for that, plus money to look after property and assets while you are on that cruise!

Future costs

If you're planning to stay in your existing home, what will the annual costs be, and what outstanding debts are there on the property? Will you look to sell the property and move to a smaller home or move in with your family? What is the impact of inflation likely to do to your investments?

Understanding the costs gives you a good idea of how much income you will need. Many people dream of the lifestyle they aspire to in their retirement, and then cross their fingers that their savings and pension will pay for it.

A far more proactive approach is to look at your current and future sources of income and decide if these are sufficient to provide for your aspirations. If not, you need to ask how you can increase your income to support yourself in retirement.

Always consider that, as well as day-to-day costs, retirees need to have a "rainy day" fund - money set aside in case of unexpected expenses such as medical bills.

A big part of ensuring you have sufficient funds involves planning ahead. There are well-known benefits to starting early in your retirement planning, because the longer an investment has time to mature, the higher potential there is for a strong return.

Starting early means you're able to invest in higher risk, higher return investments, without compromising your long-term future.

As you get closer to retirement, you can move your money into safer waters - investing in bonds and fixed-rate investments is a good policy because you are exposed to less risk in case of major changes in the market.

The other element you should consider is the equity value of your home. For many people, their home is their most valuable asset and - when they retire - unlocking the value of the home is an attractive option.

Clear strategy

However, you need to have a clear strategy for doing this. Obviously, selling your house and moving into a smaller property could be an attractive option, since it will create a surplus to fund your retirement.

However, many people have emotional ties to their house, and would be worried about moving to a new neighbourhood at a later stage of their lives.

For people who don't want to move, a mortgage or home equity line of credit could provide an additional lump sum to fund the shift to retirement, in return for monthly interest payments.

Obviously, if you decide to go down this route, you must be confident that the income generated by investments made with this lump sum will be sufficient to cover the payments and contribute to your retirement lifestyle.

All these decisions are much easier to make when planning ahead, rather than when they have a direct and immediate bearing on your life.

Starting early reduces the stress and gives you confidence that your retirement will be comfortable and settled. So, when is the right time to start planning for your retirement? Now is the right time.

The writer is sales director at Nexus, a leading regional financial adviser. The opinions expressed above are the writer's and don't necessarily represent the views of Gulf News. Please send your questions to advice@gulfnews.com.