You have been a diligent saver for decades and the moment you've been preparing for has finally arrived – retirement.
But as you stand on the threshold of this new chapter, you might find yourself facing an unexpected challenge: the transition from saving for retirement to actually living in it.
This shift is more than just a change in your daily routine; it's a fundamental transformation of your financial strategy and mindset.
The key to a smooth transition lies in careful financial planning. As you approach retirement, it's crucial to reassess your financial landscape.
Start by getting a clear picture of your expected retirement income from all sources – pensions, NSSF, personal savings, and other investments. Compare this to your anticipated expenses to ensure you have a sustainable withdrawal strategy.
Where possible, work with a financial advisor to create what some experts call a "retirement paycheck", a systematic way to withdraw from your various accounts that maximises tax efficiency and ensures your money lasts.
They can help you determine the optimal order for withdrawing from taxable, tax-deferred, and tax-free accounts, taking into consideration your unique financial situation and goals.
It's also wise to build a cash buffer of 1-2 years of living expenses in easily accessible accounts. Think of this as your financial shock absorber, helping you weather market downturns without being forced to sell investments at inopportune times. This strategy can provide peace of mind and financial stability as you adjust to your new retired life.
Re-evaluate investment strategy
As you transition, don't forget to gradually shift your investment strategy. If you were heavily invested in the stock market, you may need to adopt a more conservative approach to protect your nest egg.
Yet, it's important to maintain some growth-oriented investments to combat inflation over the long term. After all, retirement can last decades, and your money needs to keep pace with rising costs.
When it comes to stocks, the rule of thumb is to subtract your age from 100 to get the percentage that should be in stocks.
Check your healthcare costs
One of the most significant expenses you'll face in retirement is healthcare. As you age, medical costs often increase, making it crucial to have a solid plan in place.
In a transition like the current one from the National Health Insurance Fund (NHIF) to the Social Health Insurance (SHI) it is important to speak to an insurance broker to help you understand the new offering and the options to bridge any gap with private health insurance. Take time to understand the different parts and supplemental coverage options for both insurance covers.
Post-retirement medical fund contributions are another aspect to consider while you're still relatively young and healthy. This can potentially lock in lower premiums and protect your assets from being depleted by extended care needs later in life.
Explore active retirement
For those looking to stay active and engaged while earning extra income, the gig economy offers a wealth of opportunities. If you have a particular skill or area of expertise, consulting or freelance work can transition into a more passive income stream as you build a client base and potentially hire others to handle day-to-day operations.
Freelance work in your area of expertise through online platforms can allow you to continue using your professional skills on your own terms.
Remember, while these income streams are often called "passive," they typically require some upfront work and ongoing management. It's best to start developing these income sources before you retire to give them time to grow.
Not only can this be financially rewarding, but it also offers the chance to stay mentally sharp and socially connected. The key is to find a balance that provides financial benefits without compromising the freedom and flexibility that retirement offers.
Transitioning from saving for retirement to living in retirement is a journey that requires careful planning and adaptability. With a solid plan you can create a fulfilling and financially secure retirement.
Mr. Wafubwa is the Managing Director, Enwealth Financial Services Limited.
