Using the Building Blocks to Answer the Essential Questions
What if I don't die soon enough?
What does retirement mean?
Before we start talking about retirement, lets first discuss what retirement means. To me it definitely does not mean to sit on the porch and watch the people go by. It does not mean that I want to do nothing.
What it does mean is that I have sufficient savings that I do not need to work at an income generating job. That I don't HAVE to take a bad paying job, or a job with bad working circumstances just so that I can eat and have a roof over my head.
It means that the income coming in on a regular basis, is enough that I can do whatever it is that I want to do - visit the children, help other people in various ways in various places.
How much money do I need?
When we plan for retirement, there are several topics that needs to be kept in mind simultaneously:
By when do I want to retire?
How long does the retirement savings need to last?
What will my return on my savings be?
There are also many other variables to take into account, e.g. where in the economic life cycle my retirement starts, how do I handle volatility, etc?
What to invest in?
For now, we will only give very high level information.
The graphic above shows some typical investment products, and their investment horizons. (The minimum amount of time you are able to wait to access the investments.) How you allocate your investments across these products will be determined by your investment goals, the time that you have to achieve those goals, your appetite for risk, your investment skill set and your personality.
where you build your portfolio step by step, with increasing risk as you get better education and more experience.
In practical terms I divide these investments into two categories, Accessible and Non-Accessible Retirement funds.
Accessible funds are those funds that can be accessed on demand, or in a very short period of time.
Non-Accessible funds are those that are not immediately accessible. This can be for legal reasons, or because of the nature of the investment. So for example, typically government savings vehicles are only accessible after a certain age. The same with most corporate or government pensions. Share portfolios can be easily turned into cash, but you do not want to do so in a time in which the market is in a downturn, so I classify them here.
In reality your investments will be accessible in a range of time frames, depending on your specific circumstances. For example, if you just purchased a rental property, there is not going to be any equity available to access. However, if you have had the property for ten or fifteen years, there may well be equity that can be accessed. How quickly that can be done, depends on the laws in your country, as well as the financial institutions that you deal with.
How much to keep in which accounts is addressed in the section