In the last few weeks, we have discussed at length the path to becoming comfortable in retirement and living the life that you have always desired. Achieving this feat, we have also noted, involves making the right decisions and creating the right opportunities today, not tomorrow.
If you missed the previous… of the series, you can click here (Part 1, Part 2, Part 3) to catch up. Now, let us proceed.
Savings Surprises
Your leftover savings will crash your living standard in retirement
When I ask a lot of people how they come about the amount of money they currently save. A lot of them got their idea of saving from the popular savings culture. Save what you have, save 5-10% of your income, just make sure you save something, etc. All these savings are rooted in the principle of what I call the leftover savings. Leftover saving is any saving that cannot fund at least your basic living standard in the absence of a job. It is savings that downgrade your living standard beyond healthy limits. Saving 5% or 10% of your income is a guaranteed way of moving to the basement of life in retirement.
To save in ways that sustain your living standard you must understand the purpose of your income. The main purpose of your income is to buy you your freedom and not to buy the things that make other people rich. Expenses make other people rich and make you poor. Only savings make you rich. Yet the majority of people lose 90% of their income every month leaving only 10% for themselves? The problem is not that they do not know this is bad. The problem is that they know, but they just can’t stop losing their money every month. Why you may ask?
The answer is simple
Knowledge alone does not lead to transformation. Transformation comes as a result of Value. Anything you value in your life you will achieve. And if you look at all the things you have achieved in your life so far it is because you value them. Valuing something is not about saying that you value them. True value is shown in your innermost desires, reactions, words, and actions. Thus the day you value savings enough, more than the items that are currently draining your income you would save. And you would save in ways that guarantee your retirement.
Your income is small compared to the many goals you are trying to achieve. To achieve certain goals you must sacrifice or postpone other goals. Identifying the goals to sacrifice or postpone is critical as it can mean the difference between success and failure. And woe unto you if savings is what you choose to sacrifice as they would be painful consequences in retirement.
To have a restful retirement you must save big. Big portion savings is savings that focus on buying you freedom. It comprises three kinds of savings brackets. The first is to save a quarter of your income. This is the basic minimum you must strive to achieve. The second is to save half of your income, which is 50%. And the third is to push your savings to the point where you save more than you spend. This is the ultimate savings goal. You must make your savings overwhelm your expenses to have a restful retirement life.
Now you ask how on earth am I going to achieve that, especially with overwhelming responsibilities.
There are three things you must do.
The first thing is to identify what I call your top five expense gorillas and stop increasing them or creating new ones. The Expense Gorillas are the things, people, or places that are currently draining your income. From the responsibilities that you complain about to the dependents or financial distractions, you allow to the places you go to and the things you cannot say No to. You have created them all. You must understand how you are creating your own financial burden and stop creating them. While certain responsibilities and burdens come with age. The real problem is not the responsibilities. Everyone has responsibilities and everyone responds to their responsibilities differently. The problem is how your responsibilities are growing compared to your income. If you allow your responsibilities to grow faster than your income the guaranteed result is financial stress. The best way to manage responsibilities is to keep them on the slow lane and keep your income on the fast lane. If you cannot increase your income fast enough, limit the number of financial problems that you create for yourself. All financial stress is rooted in your decisions. You need to understand how you are increasing your own financial stress.
The second thing you must do is Anchor your Expenses. Anchoring expenses means fixing spending at a budget that satisfies and supports your savings goal. Savings and expenses cannot grow at the same time so you must anchor expenses to grow savings. Anchoring expense is a three-step process, the first step is to create a spending guideline. A guideline that governs how you spend. The second step is to downsize your expenses. You need to develop the courage to downsize your current expenses now that you have the choice. And the third step is to choose your anchor position. An anchor position is a financial position beyond which your expenses may not increase until you have achieved your set financial goals.
So if your savings have been stuck in the 5% to 10% bracket it means that you have anchored your savings and allowed your expenses to grow on autopilot. To have a restful retirement you must reverse this trend. The key is to live on leftover expenses and grow rich on big portion savings. Let savings increase unhindered while your expenses remain on hold.
The third thing you must do is earn more income. There is no expense reduction strategy that can make your savings increase from 10% to 100%. But it is possible to increase your savings to overtake your expenses by increasing your income. Thus earning more income provides the greatest opportunity to increase your savings.
To increase your income you need to develop high-income skills, build rich relationships and discover high-income earning opportunities.
If you fail to earn more and save more you will live off a very small paycheck in retirement and for the rest of your life.
Expenses Surprises
1. Your expenses won’t go down in retirement
Expenses are the cost incurred for living and maintaining a certain level of lifestyle. If you won’t stop living in retirement. And if you hope to maintain your living standard in retirement. Then expenses won’t go down. In fact, expenses will go up. And here is why. First, only a few things like commuting to work, eating out, or investing in work clothing would go away at retirement. New or carryover expenses will still remain. Expenses like school fees may remain for some people in retirement. Adult children may stay longer and dependent on the parent than many parents hoped for. New expenses like investing in casual clothing, homemade meals, and utility expenses would increase. There would be more self-funded vacations, hanging out with friends, leisure activities, healthcare, and medical expenses, etc.
Second, the family size will increase in retirement. Children will get married, grandchildren will emerge, Business, charity or voluntary work will consume its own money. And there would be more burials of older parents and relatives in retirement.
Third, external factors like inflation, increase in the cost of living, increase in prices of goods and services will all add to retirement cost. The economy will not halt because you retire. The economy would be upwardly mobile even in retirement.
Finally “The Sandwich Generation” Phenomenon will add to retirement to cost. A Sandwich generation is a generation that is sandwiched between caring for dependent children, caring for themselves, and caring for aging parents. Research shows that 15 percent of people between the ages of 40 and 50 are financially supporting aging parents and their children all at the same time. This makes retirement planning extremely difficult for many.
But regardless of your situation, there is only one ultimate solution-Increase your ability to earn more income. All your problems can be solved with the right amount of income. The key to understanding what the potential expense and financial load may be in retirement. And to plan to increase your income above it.
2. Your children may still remain dependent in retirement
Funding a college degree for adult children may seem like the ultimate financial burden parents have to shoulder. But most parents are seeing that there may be more financial burden to shoulder in retirement. Most adult children after graduation are now relying on their parents to keep them financially afloat. This means that without retirement planning you would not only be carrying your own burden. You will also be carrying the burden of dependent adult children.
There are three trends that seem to be common for today’s graduates. The first is unemployed-a no Job situation. The second is under-employment. A situation where a person is working but is unable to fully depend on themself or gain financial independence. And the third is delayed employment-A situation where children have to stay at home several years after graduation. All these will increase the overall financial load on parents.
It turns out that today’s graduates are faced with the bigger task of finding a source of livelihood in a society where there are limited Jobs. Jobs are reducing. Skills are gaining more acceptance in the labor market than certifications. Developing Rich relationships is becoming more important than ever before. And getting a Job alone is no longer the answer. You must get a job that can sustain a decent living standard.
Without help, children will remain dependent longer than parents hoped for and this can derail any retirement plan. Thus Middle-class families must learn from the upper-class families and must do what the upper-class families do to help their children gain independence immediately after graduation
The majority of upper-class families do not wait until graduation to help their children gain independence. Long before graduation, they have already made arrangements and know where their children will work and with whom they would work. They own their own companies that their children can work for and they also have rich friends who own or control businesses that their children can work for. If you are to be free from carrying dependents burden you must do the same. How many successful or promising business owners do you have as friends. What kind of relationships do you have that you can leverage to Launch your children to independence in retirement. How deliberate are you about planning the process? If you leave your children’s independence to chance or to your children. You would be the victim at the end of the day. The best thing to do is help your children so you can help yourself. If all your relationships are non-wealth-creating, and your children did not see you building rich relationships. Chances are high they also do not know how to build rich relationships for themselves.
If you need help building rich relationships that you can leverage in retirement we can help you. send an email to info@createsolidwealth.com
3. Retirement would be your longest vacation
Vacation is the act of leaving stressful work, people, and the environment that stresses you. To a relaxing environment with the people, work, and experiences that you love. Before retirement, you have gone on short vacations. Retirement would be your longest vacation from a stressful environment, work, and people. So how do you intend to spend this vacation and what should you do when embarking on the longest vacation of your life? Especially one that may last for up to 25 or 30years?
The answer is simple.
You do exactly what you would do when preparing for a short vacation. The first thing you should do is prepare. And there are three main areas that require preparation. The first is financial. The second is a mindset. And the third is the resources that you need to embark on your journey. Next, you need to make certain arrangements. You need to make arrangements for the hotels, flights, food, and anything that will make your stay enjoyable. After making the arrangements, you then must embark on the journey. And finally, you must arrive at your desired destination and enjoy your vacation.
It is not very hard to see people planning for a vacation with lots of excitement, anticipation, and preparation. No wonder short-term vacations are one of the most successful activities planned by working professionals. But when it comes to the longest vacation of your life most people enter it as if they were coming back. They look to it with apprehension, fear, and anxiety rather than excitement. But the truth is the entire retirement fear is caused by one factor-A lack of preparation. If retirement would be your final exit from the corporate world why are you giving it the least preparation?. Without preparation, Retirement could become the longest nightmare of your life.
To thrive in retirement you must plan income that would last for a 25–30-year lifespan. That is almost the same lifespan as your active career life.
To put this in context let’s say that you currently earn N1.5million for example and this is now what funds your current living standard. This means that before retirement you would need to plan for N 1.5million multiply by 12 months and multiplied by 25 years which is equal to 450 Million.
Do you have N450 Million sitting down anywhere, saved or invested?
If you do not have then retirement vacation can become a painful holiday.
The truth is retirement planning is more than just investing. Everyone invests but not everyone knows how to build the size of passive income that can last for up to 25 or 30years. And not everyone knows how to protect this income from the risk of inflation, devaluation, and anything that can diminish wealth.
There are three types of income you must strive to create if you want to have a restful retirement. The first is the foundational income. This is guaranteed passive income that can sustain your living standard even in an unstable economy. This income must be worth your active income at the time of retirement. And must last for a lifetime. The second is Variable income. This is the kind of income that can expand your purchasing power in retirement. Especially when the economy is good. But when the economy is bad it can also lose your income. The third is the Lump-sum Income. The lump-sum income is income that can elevate you above inflation and inject capital project funds into your hands. These three incomes combined, form a solid retirement income portfolio and are the income portfolio that can give you the kind of life that you desire in retirement.
4. You may not be able to fund vacation in retirement.
One of the things people tell me they would love to do more of in retirement is Vacation. The ability to travel, expand one’s view of the world, and create beautiful memories. And then when I ask if they have the money to fund their dream vacations, their eyes shift to the ground or ceiling. While vacation is a great way to reward yourself after working hard for so many years. Someone has to pay for it. And in retirement that someone is you. So if you do not yet have the savings that can fund your vacation or are still struggling with setting up a stable retirement income. Taking a vacation in retirement may be out of reach for you.
The best thing I think you can do is to take all the vacations that you can before retirement. Using all the traveling opportunities provided by your employer. If your organization does not offer such opportunities there are only three things to do. The first is to save up on your own to fund your vacation. The second is to join our Retirement Club and invest in our annual vacations and travels. And the third is to move to job roles that offer more travel opportunities.
Funding vacation in retirement is expensive and unless you plan for it now, there would be no vacation in retirement.
The key is to know why vacation is important to you and see if you can achieve the same goals through local and cheaper options.
About the author
Grace Agada is the most sought-after Financial Planning expert for high income professionals, CEO’s and Top Government Officials. She is quoted frequently in leading National Newspapers, magazines, and blogs. Grace is a Renowned Keynote Speaker, Author, and Column Contributor in Punch Newspaper, This Day Newspaper, Vanguard newspaper, Business Day Newspaper, Leadership Newspaper, The Tribune Newspaper, and Online Platforms like Nairametrics, Proshare, Bellanaija and Newstimes. Grace is the Founder of “The University of Wealth” The author of “The Financial Freedom MBA Programs”, “The Better Life Retirement Planning Programs” and “The Wealthy Business Blueprint”. Grace is on a mission to shrink the middle class and populate the upper class. And help the middle class become valuable assets to themselves, organizations, and the world. She has been featured on BBC Africa. Business Day TV. Inspiration FM. and inside Naijatv. And she consults for Numerous Top Organizations, Company Directors, CEOs, Senior Executives, Top Government Officials and High-Income Professionals.
Brilliant write-up, very incisive. Thank you
how do one join the retirement club?