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When Should I Retire?
We know from both quantitative analysis and empirical evidence that the long-term success of any retirement plan begins the day one start contributing towards one’s retirement plan – the sooner, the better. Also, we know that one’s net contribution or savings rate should be around 15–16% of gross income per annum maintained for at least a 35-year period, irrespective of the good and bad return patches investors will experience over time.
The problem, however, with these sound recommendations is that younger generations are generally less concerned about a very distant event and thus less motivated to address their long-term retirement needs. For them it may seem unreal to imagine retiring someday, as if it will be a very different person from oneself.
In fact, most individuals will perhaps only seriously start thinking about their retirement when some of their friends and colleagues begin their retirement. Most likely, we will find individuals somewhere in their mid to late working careers and retirement looming within, say, the next 10 years to be the most interested group in retirement advice. By that time these individuals will scrutinise their retirement plan and may seek advice from advisors to determine if their retirement plan is on track for their inevitable retirement day.
The objective and real challenge of any retirement plan should be to generate sufficient inflation-adjusted income over a prolonged period, typically 20 to 30 years after retirement. Thus, a retiree should have accumulated sufficient capital over his or her working career to be able to sustain a retirement plan. The real question then is at what level one would accumulate enough retirement capital? Or, at what age can one actually retire – irrespective of official retirement fund rules, etcetera – with the knowledge that one most likely will be financially independent for the rest of one’s life?
The purpose of this paper is to highlight the risks that one may encounter in establishing the soundness of one’s progress towards a sustainable retirement plan, say, 10 years prior to retirement. Moreover, it is very relevant for retirement planners when giving advice to their clients.
Contents of publication:
I’m 55 years old and getting serious about my retirement plan
Retirement planning objectives
The traditional approach to retirement planning
Identifying the flaw in the conventional retirement planning approach
Evaluating a prospective retiree’s retirement plan
Planning for different scenarios
Points to ponder
A basic introduction to the study: When should I retire? An Introduction
Afrikaanse weergawe (hooftrekke): Wanneer kan ek aftree?
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