Retirement planning is one of life’s most difficult financial problems due to the permanent nature of many of your choices. The fact that these are choices we have never had to make before only adds to the difficulty. It’s not always just about the money you’ve saved or the bets you’ve made in your work life.
What are we talking about?
Here are five examples:
1. Should I downsize?
Selling a home is a huge and often costly life transition. Switching from a single-family home to an apartment, for example, can be a wise decision.
However, keep in mind that this new living situation may come with a set of rules and regulations that you are not used to. These restrictions may affect your lifestyle and personal preferences. If you are not satisfied with your new home, reversing the decision can place a significant financial burden on you. Weigh the pros and cons before making a final decision.
2. Should I move somewhere else?
Saving money is one thing. Moving is something else. It’s important to consider the potential impact on your social support network and the friendships you may leave behind.
While better weather and lower taxes may be attractive, they may not fully compensate for the loss of close relationships.
It’s worth considering the possibility of regret or homesickness, especially since moving can be both expensive and logistically challenging, especially if you’ve already spent a significant portion of the proceeds from the sale of your previous, more expensive home. It is essential to weigh the possible pros and cons of such an important step before making a final decision.
3. When should I stop working?
Determining the right time to retire is crucial.
It marks the end of your regular income and ends your savings as you begin to draw on your retirement fund. However, there is always the option to work part-time during retirement, which has many benefits.
Not only does it provide some financial stability, but it can also give retirees a sense of purpose.
4. To whom do I want to leave my inheritance?
Many successful family stewards prioritize leaving a substantial legacy to their spouse, children, or a charitable organization.
If this is important to you, decide what to leave in addition to your own needs.
In your estate planning options, consider the possible use of a family trust.
5. What options do I have to access my pension?
If you are an expatriate, you have several options for withdrawing money from your pension pot when you reach retirement age.
If you have an employer’s pension, you may be able to receive your benefit as a lump sum or as an annuity. The amount you can withdraw as a lump sum depends on the terms of your retirement plan, and you may need to buy an annuity with the remaining money. Alternatively, you can earn a steady income from this retirement plan, either through an annuity or through income withdrawal.
If you have a private pension, you may have similar options as an employer’s pension. You can usually withdraw an amount tax-free, with the remaining amount used to purchase an annuity or invest in an income withdrawal plan.
It’s important to note that the rules around retirement withdrawals can be complicated, and you may have to pay taxes on the amount you receive. You are unlikely to pay income tax as a non-resident of your home country, but you may be taxed in the country where you now live.
In addition, the decision to take a lump sum or make periodic payments should be made carefully, considering your financial needs and long-term retirement goals.
What You Need to Factor Into Your Financial Plan
When you think about the above, it is natural to choose an option that will reduce the risk of financial loss and short-term regret. However, making the emotionally comfortable choice now can lead to long-term financial damage. You are more likely to make better decisions if you are emotionally involved in tackling potentially difficult retirement choices. Below are a few more questions you may want to think about as you approach your retirement years:
- What would you consider a successful retirement?
- What kind of lifestyle do you really want?
- How can you control your costs?
- What are your plans for your later years and the cost of your long-term care?
- What will happen to your company?
All the above should be factored into your financial plan, and that can only be done if your financial consultant really understands you and your story. Try to imagine your life as a retiree. Only then will you invest the time necessary to determine how to support the life you really want.